Suppose at the prevailing interest rate of 4 percent the money supply and the quantity of money demanded are both $2 trillion. At a 5 percent interest rate, the quantity of money demanded is $1.5 trillion, while at a 3 percent interest rate it is $2.5 trillion. If the Fed conducts an open-market purchase of $50 billion, and if the money multiplier is 10, then at what interest rate will the money
supply equal the quantity of money demanded?
a. An interest rate of 5 percent and a quantity of $1.5 trillion.
b. An interest rate of 4 percent and a quantity of $2 trillion.
c. An interest rate of 3 percent and a quantity of $2.5 trillion.
d. An interest rate of 4 percent and a quantity of $2.5 trillion.
c
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On a supply-and-demand diagram, equilibrium is found
A) where the supply curve intercepts the vertical axis. B) where the demand curve intercepts the horizontal axis. C) where the demand and supply curves intersect. D) at every point on either curve
Refer to the diagram below for the milk market. There would be a shortage of milk whenever the price is:
A. Higher than $1.50 per gallon
B. Higher than $2.00 per gallon
C. Lower than $1.50 per gallon
D. Lower than $2.00 per gallon