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6 March, 06:35

1. Assume that the money demand function is (M / P) d = 2,200 - 200r, 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:

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  1. 6 March, 06:39
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    r = 3

    Explanation:

    Due that the level price does not changed, the first thing that you have to do to find the equilibrium is put the two equations with an equal

    Money demand = Supply of money

    2,200 - 200 r = 2,000

    Now you have to find the value of r and you have to clear the formula and first you have to:

    2,800 - 2,200 = 200r

    Now that you have the number together you have to apply the operation

    600 = 200r

    As the 200 is multiplying the r you have to pass the 200 to divided the 600

    r = (600/200)

    r = 3%

    The interest rate is 3%
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