Question

Refer to Table 1 and Table 2 below to answer questions 46 through 50. Assume that the supply of money (MⓇ) and the demand for money (Md) in an economy are described by Table 1 (note that money is defined as M1). Assume that the amount of business investment (1) is described by Table 2. Also assume that the banking system is always loaned up and there is no crowding out. Table 1 Table 2 Md - r M r 5% $130 $100 5% $420 6 120 100 6 400 7 110 100 7 380 8 100 100 8 360 9 90 100 9 340 10 80 100 10 320 11 70 100 11 300 Given the r* from Question 46 above, investment (I) is equal to Select one: a. $400. b. $360. c. $320. d. $300. e. none of the above.

Answer 1

In the above table,when money market is equilibrium at

Md =Ms  I.e 100=100

And At this point interest rate is 8% and from table 2 we get that at r =8% investment is equal to $360.

So option B) is correct answer. I.e $360.