-Refer to the above table.Suppose the transactions demand for money is equal to 20 percent of the nominal GDP,the supply of money is $800 billion,and the asset demand for money is that shown in the table.If the nominal GDP is $2000 billion,the equilibrium interest rate is:
A) 4 percent.
B) 5 percent.
C) 6 percent.
D) 7 percent.

Question

-Refer to the above table.Suppose the transactions demand for money is equal to 20 percent of the nominal GDP,the supply of money is $800 billion,and the asset demand for money is that shown in the table.If the nominal GDP is $2000 billion,the equilibrium interest rate is:
A) 4 percent. 
B) 5 percent. 
C) 6 percent. 
D) 7 percent.

Quizplus · Accepted Answer

The transactions demand for money is 20% of $2000 billion, which is $400 billion. The total money demand is the sum of transactions demand ($400 billion) and asset demand. The supply of money is $800 billion, so the asset demand must be $400 billion to match the supply. From the table, an asset demand of $400 billion corresponds to an interest rate of 5 percent.

-Refer to the Above Table