$$\begin{array} { | c | c | }
\hline \text { Interest Rate } & \text { Asset Demand for Money (Billions) } \
\hline 7 \% & \$ 200 \
\hline 6 & 300 \
\hline 5 & 400 \
\hline 4 & 500 \
\hline
\end{array}$$ Suppose that the transactions demand for money is equal to 20 percent of the nominal GDP, the supply of money is $800 billion, and the asset demand for money is that shown in the table. If the nominal GDP is $2,000 billion, the equilibrium interest rate is
A) 4 percent.
B) 5 percent.
C) 6 percent.
D) 7 percent.

Question

$$\begin{array} { | c | c | } 
\hline \text { Interest Rate } & \text { Asset Demand for Money (Billions) } \
\hline 7 \% & \$ 200 \
\hline 6 & 300 \
\hline 5 & 400 \
\hline 4 & 500 \
\hline
\end{array}$$ Suppose that the transactions demand for money is equal to 20 percent of the nominal GDP, the supply of money is $800 billion, and the asset demand for money is that shown in the table. If the nominal GDP is $2,000 billion, the equilibrium interest rate is
A) 4 percent.
B) 5 percent.
C) 6 percent.
D) 7 percent.

Quizplus · Accepted Answer

The transactions demand for money is 20% of $2,000 billion, which is $400 billion. The total demand for money is the sum of transactions demand ($400 billion) and asset demand. At 5%, the asset demand is $400 billion, making the total demand $800 billion, which equals the money supply. Thus, the equilibrium interest rate is 5%.

Suppose That the Transactions Demand for Money Is Equal to