Homework Help: Economics

Posted by Frank on Monday, January 29, 2007 at 8:26pm.

Hypothetical Economy:
-Money Supply= $200 billion
-Quantity of money demanded for transactions=$150 Billion
-Quantity of money demanded as an asset=$10 billion at 12% interest
-increaseing by $10 billion for each 2 percentage point fall in the interest rate.

A. What is the equilibrium interest rate? Explain.

B. At equilibrium interest rate, what are the quantity of money supplied, the total money demanded, the amount of money demnded for transactions, and the amount of money demanded as and asset?

A) Equilibrium occurs where Money Supply = Money Demand. At what interest rate does the assent demand for money = $50B

B) once you answer A, the rest should fall out fairly easily.

a = four percent

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