Consider the model we discussed in class without checkable deposits characterized by money supply (M")and money demand (M4) represented in the following forms:M = M, M = SYL(1)Suppose the linear functional form of the liquidity demand equation:L(1)=2.4-3iQuestion 1.AWrite down the equilibrium condition in this financial market. Solve for the equilibrium interest ratemathematically and depict it graphically, taking the zero lower bound into account.Question 1.BOften, since central banks are unsure of the exact money supply in the economy, instead of choosingone specific money supply, they target a range (an upper and lower bound). Suppose the central bank istargeting an interest rate between 14 = 0.1 and ip = 0.2 (also known as 10% and 20%). What range ofmoney supply would guarantee these interest rates? Denote these as MA and Mp. Let SY 1. Depict thisgraphically.

Money Demand : Md = Y L(i ) Money Supply : Ms = M Liquidity demand equation : L(i ) = 2.4 - 3i

Consider the model we discussed in class without checkable deposits characterized by money supply and money demand (M) represented in the following forms: MM, M = SY L(1) Suppose the linear functional form of the liquidity demand equation: L(1)=2.4-31 Question 1.A. Write down the equilibrium condition in this financial market. Solve for the equilibrium interest rate mathematically and depict it graphically, taking the zero lower bound into account.

Consider the model we discussed in class without checkable deposits characterized by money supply and money demand (M) represented in the following forms: MM, M = SY L(1) Suppose the linear functional form of the liquidity demand equation: L(1)=2.4-31 Question 1.A. Write down the equilibrium condition in this financial market. Solve for the equilibrium interest rate mathematically and depict it graphically, taking the zero lower bound into account.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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