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

To find the equilibrium interest rate, we need to calculate the interest rate at which the quantity of money demanded as an asset equals $50 billion. The information provided states that the demand for money as an asset increases by $10 billion for each 2 percentage point fall in the interest rate.

Let's break it down step by step:

1. Start by determining the initial amount of money demanded as an asset at the current interest rate:
- Quantity of money demanded as an asset: $10 billion
- Interest rate: 12%
- The amount of money demanded increases by $10 billion for each 2 percentage point fall in the interest rate.

2. Calculate the interest rate reduction necessary to increase the money demanded as an asset to $50 billion:
- Difference between the target demand ($50 billion) and the initial demand ($10 billion): $50 billion - $10 billion = $40 billion
- Divide the difference by the increase per 2 percentage point fall in the interest rate: $40 billion / $10 billion = 4
- Each 2 percentage point fall in the interest rate corresponds to a $10 billion increase, so multiplying 4 by $10 billion gives us $40 billion.
- This means that a 4 times 2 percentage point fall is required to increase the money demanded as an asset to $50 billion.

3. Calculate the equilibrium interest rate:
- Start with the initial interest rate: 12%
- For each 2 percentage point fall, the money demanded as an asset increases by $10 billion.
- Multiply the fall in interest rates (4 times 2 percentage points) by the increase in money demanded per fall ($10 billion): 4 times 2 percentage points * $10 billion = 8 percentage points * $10 billion = $80 billion
- Divide the increase in money demanded ($80 billion) by the initial money demanded ($10 billion): $80 billion / $10 billion = 8

Therefore, the equilibrium interest rate is 12% - 8% = 4%.

Now let's move on to part B:

B) At the equilibrium interest rate of 4%:
- The quantity of money supplied is equal to the money supply: $200 billion
- The total money demanded is the sum of the money demanded for transactions and the money demanded as an asset:
$150 billion (money demanded for transactions) + $50 billion (money demanded as an asset) = $200 billion
- The amount of money demanded for transactions remains at $150 billion.
- The amount of money demanded as an asset is $50 billion.

Therefore, at the equilibrium interest rate of 4%, the quantity of money supplied is $200 billion, the total money demanded is $200 billion, the amount of money demanded for transactions is $150 billion, and the amount of money demanded as an asset is $50 billion.