Equilibrium Interest Rate Calculation
What is the equilibrium interest rate based on the given table?
The equilibrium interest rate is 6 percent.
Calculating Equilibrium Interest Rate
1. For 2% interest rate:
Demand for Money = $300
Demand for Assets = $220
Not in equilibrium.
2. For 4% interest rate:
Demand for Money = $280
Demand for Assets = $260
Not in equilibrium.
3. For 6% interest rate:
Demand for Money = $260
Demand for Assets = $260
In equilibrium.
4. For 8% interest rate:
Demand for Money = $240
Demand for Assets = $220
Not in equilibrium.
Based on the analysis above, we can conclude that the equilibrium interest rate is 6 percent. This is the point at which the demand for money matches the demand for assets, creating a balance in the market. Therefore, the correct answer to the question is 6 percent.