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Use the following information to answer the next questions

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Question;Use the following information to answer the next questions.mm = money multiplier =.8MB = monetary base = 4000Money Demand: Md = P X [ a0 +.5 (Y) - 200 (i) ]where: a0 = 1200, Y = 6000For 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 correctSuppose 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 correctSuppose 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 salesB) 500 in open market purchasesC) 400 in open market salesD) 400 in open market purchasesE) 2800 in open market salesGiven 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

 

Paper#57852 | Written in 18-Jul-2015

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