I can\'t seem to get the money demanded or the interest rate but have all the re
ID: 1206978 • Letter: I
Question
I can't seem to get the money demanded or the interest rate but have all the rest done. Consider the following model of the economy: (1) Y = C + Io + Go + Xo – M
(2) C = Co + c[Y]
(3) M = Mo + m[Y]
(4) Co = Io = Go = Mo = Xo = $100
(5)c = marginal propensity to consume = .8
(6)m = marginal propensity to import = .2
(7)MS = money supply = mm[D + F]
(8) mm = money multiplier = 1/Reserve ratio
(9) D = domestic credit = $1,000
(10) F = reserves = $1,000
(11) MD = money demand = $25,000 - $1000[i]
(12) Reserve ratio = .5
(13) i = interest rate
Find the following: (14) National income = Y $300 (15) The amount of imports M 160 (16) The trade deficit or surplus (X-M) Trade deficit of 60 (17) Money supply MS $4,000 (18) Money demand MD ?(19) The interest rate i ?
Explanation / Answer
In equilibrium , Money Demand = Money Supply, So money demand = $4000
25000 - 1000 i = 4000
1000 i = 21000
i = 21000 / 1000 = 21
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