The demand for money in a country is given by: Md = 200,000 - 200,000r +Y
Where Md is money demand in dollars, r is the interest rate (a 10% interest rate = r = .1), and Y is national income. Assume Y is initially 1,000,000.

a. Suppose the money supply is set by the central bank at $1,198,000. What is the equilibrium interest rate?
b. Suppose income decreases from 1,000,000 to 999,000 determine the new equilibrium interest rate.
c. If the central bank wants to keep the interest rate the same as in part a, by how much should it increase or decrease the money supply?

The demand for money in a country is given by: Md = 200,000 - 200,000r +Y
Where Md is money demand in dollars, r is the interest rate (a 10% interest rate = r = .1), and Y is national income. Assume Y is initially 1,000,000.

a. Suppose the money supply is set by the central bank at $1,198,000. What is the equilibrium ...

Solution Summary

Solution depicts the steps to find the equilibrium interest rate in the given case.

$2.19

See Also This Related BrainMass Solution

Calculating equilibrium interest rate

Suppose the total demand for money is described by the following equation:
MD = 30-2i
where i is the prevailing market interest rate. The total supply of money is described by the following equation:
MS = 3 + 7i

According to liquidity preference, what is the equilibrium interest rate?

... a. Calculate the equilibrium Y. b. How much is consumption? ... effect will this on the IS curve, the LM curve, equilibrium output, and equilibrium interest rate. ...

... Consumption is Investment is where is the real interest rate. Taxes are 1000, and government expenditures are 1500. a. Calculate the equilibrium values of and. ...

... The expert calculates the change in equilibrium output in this case. ...Calculate for both years ... is located if the interest rate is below the equilibrium level and ...

... 5- What are the equilibrium levels of output and interest rate? 6- Calculate the fiscal multiplier; à?; or the government spending multiplier after interest...

...Calculate the present value of each of the following future payments. ... If you use the calculator, enter ... is 6 percent ue of a perpetuity is calculated as (Payment ...

... The solution shows how to calculate the equilibrium level of ...Calculate the equilibrium level of income when interest rates are 1, 2, 3, 4, 5, 6, 7, 8, 9 ...

... the investment and money demand functions, we can derive the IS and LM equations, which will allow for calculating equilibrium interest rate and output levels. ...