Suppose the transactions demand for money is equal to 10% of the nominal GDP, th

Question

Suppose the transactions demand for money is equal to 10% of the nominal GDP, the supply of money is $450 billion, and the asset demand for money is that shown in the table.
Interest Rate               Asset demand (billions)
         14%                                 $100
          13                                    150
          12                                     200
          11                                     250

If the nominal GDP remains constant at $3000 billion, an increase in the money supply from $450 billion to $500 billion would cause the equilibrium interest rate to

Explanation / Answer

3. Fall to 12%

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