# Equilibrium Interest Rate Assignment

Equilibrium Interest Rate Assignment
Use the following information to answer the next questions.
mm = money multiplier = .8
MB = monetary base = 4000
Money Demand: Md = P X [ a0 .5 (Y) – 200 (i) ]
where: a0 = 1200, Y = 6000
For simplicity we hold the price level fixed at 1 and assume that inflationary expectations are fixed at 2%. Y is also held constant in this problem.
What is the equilibrium interest rate (i)?
A) .20%
B) 1%
C) 5%
D) 8%
E) None of the above are correct
Suppose a0 falls to 800. What is the new equilibrium interest rate?
A) .33%
B) 3%
C) 4%
D) 6%
E) None of the above are correct
Suppose that the Fed wanted to keep interest rates constant at their initial level (the value you found in

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