High School

Refer to the following table to answer the question:

| Interest Rate | Demand for Money ($) | Demand for Assets ($) |
|---------------|----------------------|-----------------------|
| 2% | 300 | 220 |
| 4% | 280 | 220 |
| 6% | 260 | 220 |
| 8% | 240 | 220 |
| 10% | 220 | 220 |

The equilibrium interest rate is:

A. 2 percent
B. 4 percent
C. 6 percent
D. 8 percent

Answer :

The equilibrium interest rate is 6 percent.


To determine the equilibrium interest rate, we need to find the point where the demand for money equals the demand for assets. In the given table, the equilibrium interest rate is when:

Demand for Money = Demand for Assets

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, the equilibrium interest rate is 6 percent. So the correct answer is:
6 percent.

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