The spreadsheet provides data about the demand for money in Minland Columns A and B show the...

Question:

The spreadsheet provides data about the demand for money in Minland Columns A and B show the demand for money schedule when real GDP(Yq) is $10 billion and Column A and C show the demand for money schedule when real GDP(Y) is $20 billion. The quantity of money is $3 billion.

A B C
1 r y0 y1
2 7 1.0 1.5
3 6 1.5 2.0
4 5 2.0 2.5
5 4 2.5 3.0
6 3 3.0 3.5
7 2 3.5 4.0
8 1 4.0 4.5

What is the interest rate when real GDP is $10 billion? Explain what happens in the money market in the short run if real GDP increases to $20 billion.

Money Demand:

Money demand is the quantity of money which all the sectors of any economy are willing to demand at the given level of the interest rate. It is represented by an upward sloping curve which depicts the connection between the interest rate and the quantity of money in the economy.

Answer and Explanation:

1. When the real GDP is $10 billion, the interest rate will be 3%. It is because at 3% of interest rate the money demand $3 billion which is...

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The Money Market: Money Supply and Money Demand Curves

from Economics 102: Macroeconomics

Chapter 11 / Lesson 10
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