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Suppose that the money demand function is (M/P)d = 5000 – 250r, where r is the real interest rate in percent

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Suppose that the money demand function is (M/P)^d = 5000 – 250r, where r is the real interest rate in percent. The money supply M is 2500 and the price level P is 1.

a.) Graph the supply and demand for real money balances.

b.) What is the equilibrium interest rate?

c.) Assume that the price level is fixed. What happens to the equilibrium interest rate if the supply of money is raised from 2500 to 4000?

d.) If the Fed wishes to raise the interest rate to 15 percent, what money supply should it set?