The required reserve ratio is 10. how great an open market, Ask an Expert

Economics

The money demand curve is given by the following equation: Md = 5,000 - 10,000r + 5Y Md is money demand, r is the real interest rate, and Y is aggregate income.

a) Why does the equation have a negative value for the second term and a positive value for the third term?

b) Suppose that the equilibrium interest rate is 30% (r = 0.3). find out money demand.
Suppose Y = 5,000. At the existing interest rate, there is an excess (demand/supply) of money?

c) What will be the new equilibrium interest rate?

d) How much must the money supply increase to restore the original interest rate (r=0.3)?

e) The required reserve ratio is 10%. How great an open market purchase or sale of securities should the central bank undertake to restore the original interest rate i.e. what is the values of purchase/sale of bonds?

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Microeconomics, Economics

Category:- Microeconomics
Reference No.:- M951916

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