Question

The total demand for money is equal to the transactions demand plus the asset demand for money 1. Assume that each dollar held for transactions purpose is spent on the average 2 times per year to buy final goods and services. If nominal GOP is 600 billion dollars, what is the transaction's demand for money? Number 2. The table below shows the asset demand at certain rates of terest Using your answer to part 1. complete the table to show the total demand for money at various roles of interest Total demand Interest rate (in %) Asset demand billions 80 3. If the money supply is 360 bilion, what will be the equilibriums rate of interest? Number 4. the money supply rises to 440, will be the new equilibrium rate of interest? Number 5. GDP rises, what will be the effect on the rate of interest? Click for List

Answer 1

Answer:

1] Transaction demand of money = 600/2 = $ 300 billion

2] Table total demand = asset + transaction demand

Interest rate	asset demand	total demand
10	40	300+40=340
8	80	300+80=380
6	120	300+120=420
4	160	300+160=460

3]

Money supply = 360

At eqm, money supply = money demand

So interest rate i*= 9%

4]

Money supply = 440

At eqm, money supply = money demand

So interest rate i*= 5%

5]

Thus as GDP rise, transaction demand rise.

so total money demand rise, at u​​​​​​unchanged money supply, interest rate rises due to increase in money demand.