Compute the equilibrium interest rate by setting

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Q. Assume the following:

i. The public holds no currency.

ii. The ratio of reserves to deposits is 0.1.

iii. The demand for money is given by

Md = $Y(.82-3.2i)

Initially, the monetary base is $83 billion, and nominal income is $4.7 trillion.

a. Determine the demand equation for central bank money.

b. Calculate the equilibrium interest rate by setting the demand for central bank money equal to the supply of central bank money. (Round your answer to two decimal places).

c. Determine the overall supply of money. Compute the equilibrium interest rate by setting the overall demand for money equal to the overall supply of money.

Reference no: EM1348798

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