Assume the money demand function in the picture, where r is the interest rate in percent. Themoney supply M is 2,000, and the price level P is 2. If the price level is fixed and the supply ofmoney is raised to 2,800, then the equilibrium interest rate will: *(M/P)d = 2,200 - 200rdrop by 1 percentage point.remain unchanged.Odrop by 2 percentage points.Odrop by 4 percentage points.

With change in money supply there will be change in interest rate and there may be increase in…

Answered: money supply M is 2,000, and the price…

money supply M is 2,000, and the price level P is 2. If the price level is fixed an money is raised to 2,800, then the equilibrium interest rate will: * (M/P)d = 2,200 -

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Question

Assume the money demand function in the picture, where r is the interest rate in percent. The
money supply M is 2,000, and the price level P is 2. If the price level is fixed and the supply of
money is raised to 2,800, then the equilibrium interest rate will: *
(M/P)d = 2,200 - 200r
drop by 1 percentage point.
remain unchanged.
Odrop by 2 percentage points.
Odrop by 4 percentage points.

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