Suppose That the Current Money Market Equilibrium Has an Interest

question 193

Multiple Choice

Suppose that the current money market equilibrium has an interest rate of 5 percent and a quantity of $2 trillion. Suppose that at a 6 percent interest rate, the quantity of money demanded is $1.5 trillion, while at a 4 percent interest rate it is $2.5 trillion. If the Fed makes an open-market purchase of $50 billion, and the money multiplier is 10, what will be the new money market equilibrium?

• A) An interest rate of 6 percent and a quantity of $1.5 trillion.
• B) An interest rate of 5 percent and a quantity of $2 trillion.
• C) An interest rate of 4 percent and a quantity of $2.5 trillion.
• D) None of the above.

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