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Paul [167]
3 years ago
11

Assume that the money demand function is (M / P)d = 2,200 – 200r, where r is the interest rate in percent. If the price level is

fixed at P=2, and the Fed wants to fix the interest rate at 7 percent, it should set the money supply at:
Business
1 answer:
Wittaler [7]3 years ago
8 0

Answer:

The money supply should be set at 800

Explanation:

In this question, we are asked to calculate the value at which Fed should set the money supply at after fixing the interest rate at 7 percent.

We proceed as follows;

Let the new money supply be M.

To fix the interest rate at 7%, r= 7 and P = 2

(M/P)d = 2,200 - 200r

= 2200 - 200(7)

=2200-1400

= 800

M = 800

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