Question

Using the data in the table below, answer the following questions. (Hint: draw a graph when possible)

Interest Rate%	Money Demand (billions of dollars)
19	100
18	120
17	140
16	160
15	200
14	260
13	320
12	400
11	500

Assume that the money supply is equal to 160 (do not use % signs in your answers)

Part 1: What is the equilibrium rate of interest?

Part 2: Assume that the Bank of Canada buys bonds and increases the money supply to 320 What is the equilibrium rate of interest?

Part 3: A fall in income causes the demand for money to    increasedecreaseno changeClick for List by 60 billion. If the money supply is 80, what is the equilibrium rate of interest?

Part 4: Assuming the change in part 3, if money supply is 340, what is the equilibrium rate of interest?

Part 5: An increase in income causes the transaction demand for money to    increaseno changedecreaseClick for List by 40 billion at each interest rate. (Assume the change in part 3 did not occur. Given a money supply of 160, what is the equilibrium rate of interest?

Part 6: Given the change in part 5, if money supply is 300, what is the equilibrium rate of interest?  

Answer 1