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What is the equilibrium interest rate

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Reference no: EM132501366

Suppose that money demand is given by Md = aY(0.25 - i) where aY is a100. Also, suppose that the supply of money  is a20.

a. What is the equilibrium interest rate?

b. If the central bank wants to increase i by 10 percentage points (e.g., from 2% to 12%), at what level should it set the supply of money?

Reference no: EM132501366

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