Solution for QID #757: Consider an economy with the following real money demand fun | StudyHelpMe

Consider an economy with the following real money demand function, real aggregate income, nominal money supply, price level, and expected rate of inflation: ? ???????? /???? = 0.5???? ? 10,000(???? + ???? ???? ) ? ???? = 3000 ? ???????? = 4000 ? ???? = 5 ? ???? ???? = 0.02a. According to Liquidity Preference Theory, what is the equilibrium real interest rate (r*)?b. All else equal, what will the new equilibrium real interest rate be, if the nominal money supply (MS ) is increased from 4000 to 5000?c. If the central bank wants the equilibrium real interest rate (r*) to be 10%, what value should it pick for the nominal money supply (MS ), assuming that Y, P, and ? e remain at their initial levels?