Use the following information to answer the next questions

Question # 00005729 Posted By: vikas Updated on: 12/23/2013 11:25 PM Due on: 12/31/2013
Subject Economics Topic General Economics Tutorials:
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Use the following information to answer the next questions.

mm = money multiplier = .8
MB = monetary base = 4000
Money Demand: Md = P X [ a0 + .5 (Y) - 200 (i) ]
where: a0 = 1200, Y = 6000
For simplicity we hold the price level fixed at 1 and assume that inflationary expectations are fixed at 2%. Y is also held constant in this problem.

What is the equilibrium interest rate (i)?
A) .20%
B) 1%
C) 5%
D) 8%
E) None of the above are correct

Suppose a0 falls to 800. What is the new equilibrium interest rate?
A) .33%
B) 3%
C) 4%
D) 6%
E) None of the above are correct

Suppose that the Fed wanted to keep interest rates constant at their initial level (the value you found in #1). What would the Fed have to do in terms of open market operations to achieve this?
A) 500 in open market sales
B) 500 in open market purchases
C) 400 in open market sales
D) 400 in open market purchases
E) 2800 in open market sales

Given the interest rate you found in #18, what is the ex-ante real interest rate?
A) 1%
B) 0%
C) -1%
D) 2%
E) None of the above are correct
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Tutorials for this Question
  1. Tutorial # 00005522 Posted By: vikas Posted on: 12/23/2013 11:26 PM
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