1. Assume that the money demand function is (M / P) d = 2,200 - 200r, where r is the interest rate in percent. The money supply M is 2,000, and the price level P is 2. If the price level is fixed and the supply of money is raised to 2,800, then the equilibrium interest rate will:

Question

Business

Hugo Lyons

30 June, 04:24

1. Assume that the money demand function is (M / P) d = 2,200 - 200r, where r is the interest rate in percent. The money supply M is 2,000, and the price level P is 2. If the price level is fixed and the supply of money is raised to 2,800, then the equilibrium interest rate will:

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Answers (1)

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Zayne Edwards · Answer 1

r = 3

Explanation:

Due that the level price does not changed, the first thing that you have to do to find the equilibrium is put the two equations with an equal

Money demand = Supply of money

2,200 - 200 r = 2,000

Now you have to find the value of r and you have to clear the formula and first you have to:

2,800 - 2,200 = 200r

Now that you have the number together you have to apply the operation

600 = 200r

As the 200 is multiplying the r you have to pass the 200 to divided the 600

r = (600/200)

r = 3%

The interest rate is 3%