If the IS Curve Is Given by Y = 1,700

question 108

Multiple Choice

If the IS curve is given by Y = 1,700 - 100r, the money demand function is given by (M/P) ^d = Y - 100r, the money supply is 1,000, and the price level is 2, then if the money supply is raised to 1,200, equilibrium income rises by:

• A) 200 and the interest rate falls by 2 percent.
• B) 100 and the interest rate falls by 1 percent.
• C) 50 and the interest rate falls by 0.5 percent.
• D) 200 and the interest rate remains unchanged.

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