Assume That the Money Demand Function Is (M/P)^d = 2,200

question 107

Multiple Choice

Assume that the money demand function is (M/P) ^d = 2,200 - 200r, where r is the interest rate in percent. The money supply M is 2,000 and the price level P is 2. If the price level is fixed and the supply of money is raised to 2,800, then the equilibrium interest rate will:

• A) drop by 4 percent.
• B) drop by 2 percent.
• C) drop by 1 percent.
• D) remain unchanged.

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