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

question 54

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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