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

question 40

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 Fed wants to fix the interest rate at 7 percent, it should set the money supply at:

• A)2,000.
• B)1,800.
• C)1,600.
• D)1,400.

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