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Commodity and money markets of a closed economy

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Reference no: EM13903448

You are given the following information about the commodity and Money markets of a closed economy without government intervention.

The commodity market
Consumption function: C = 50 + 2/5Y
Investment function: I = 790 - 21r
The Money Market
Precautionary and Transactions demand for money: MDT = 1/6 Y
Speculative demand for money: MDS = 1200 -18r
Money supply: MS = 1250

Required:

(i) Determine the equilibrium levels of income and interest rate for this economy.

(ii) Using a well labelled diagram, illustrate the equilibrium condition in part (i) above.

1. (b) Discuss clearly any two instruments of monetary policy that the Central Bank can use to meet monetary policy objectives

Reference no: EM13903448

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