Suppose the monetary base is an economy is equal to 100 and nominal GDP is equal to 10,000. The money demand function is given as Md=$Y(0.4-2i). Interest rates are measured as a fraction. Suppose that initially people don't hold any currency and that the bank hold 10% of deposits as reserves. a) calculate the equilibrium demand for central bank money. b) solve for the equilibrium interest rate in the market for central bank money.

Suppose the monetary base is an economy is equal to 100 and nominal GDP is equal to 10,000. The money demand function is given as Md=$Y(0.4-2i). Interest rates are measured as a fraction. Suppose that initially people don't hold any currency and that the bank hold 10% of deposits as reserves. a) calculate the equilibrium demand for central bank money. b) solve for the equilibrium interest rate in the market for central bank money.

Survey Of Economics

10th Edition

ISBN:9781337111522

Author:Tucker, Irvin B.

Publisher:Tucker, Irvin B.

Chapter13: Inflation

Section: Chapter Questions

Problem 16SQ

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