4. Let M°=2,000–20,000r+0.5P-Y, P.Y=10,000, and M=5,000. 25% 20% 15% 10% 5% 3,000 4,000 5,000 6,000 7,000 8,000 M (a) (i

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4 Let M 2 000 20 000r 0 5p Y P Y 10 000 And M 5 000 25 20 15 10 5 3 000 4 000 5 000 6 000 7 000 8 000 M A I 1 (126.28 KiB) Viewed 36 times

4. Let M°=2,000–20,000r+0.5P-Y, P.Y=10,000, and M=5,000. 25% 20% 15% 10% 5% 3,000 4,000 5,000 6,000 7,000 8,000 M (a) (i) Draw in the graph above the money demand curve and the money supply curve. (ii) What is the equilibrium interest rate? (b) If the nominal income P-Y rises 20% and the quantity of money supplied M does not change, (i) Draw the new money demand curve in the graph above. (ii) What is the excess demand or supply of money before the interest rate change? (iii) What is the new equilibrium interest rate? (c) If the nominal income rises 20% and the central bank wants to keep interest rate unchanged, (i) how much government securities should it buy or sell in the open market if the required reserve ratio is 10% and private banks do not hold excess reserves? (ii) Draw the new money supply curve in the graph above.