Suppose that in Mysore, the reserve-deposit ratio is
res = 0.5 - 2i,
where i is the nominal interest rate. The currency-deposit ratio is 0.2 and the monetary base equals 100. The real quantity of money demanded is given by the money demand function
L(Y, i) = 0.5Y - 10i,
where Y is real output. Currently, the real interest rate is 5% and the economy expects an inflation rate of 5%. The money supply equals
a. 200.
b. 400.
c. 300.
d. 240.
Answer: D
FIN 201
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