1. Suppose that the economy has the following money supply and demand equations: Money Supply: M = 8000 Money Demand: M= 10,000 – 40,000r where money is in billions of dollars and interest rates, r, is written as a decimal (e.g., an interest rate of 10% would be written as .1 in the equation). A. Determine the equilibrium interest rate and quantity of money. B. What will happen in the money market if the interest rate is currently 10%? What is the amount of excess supply of or excess demand for money? С. Show in graph that at this interest rate (10%) there is disequilibrium in the money market.
1. Suppose that the economy has the following money supply and demand equations: Money Supply: M = 8000 Money Demand: M= 10,000 – 40,000r where money is in billions of dollars and interest rates, r, is written as a decimal (e.g., an interest rate of 10% would be written as .1 in the equation). A. Determine the equilibrium interest rate and quantity of money. B. What will happen in the money market if the interest rate is currently 10%? What is the amount of excess supply of or excess demand for money? С. Show in graph that at this interest rate (10%) there is disequilibrium in the money market.
Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Eugene F. Brigham, Phillip R. Daves
Chapter8: Basic Stock Valuation
Section: Chapter Questions
Problem 4MC
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