You are studying with a friend and your friend says, Private ...

[tfester]

You are studying with a friend and your friend says, Private goods are excludable and nonrival, while public goods are nonexcludable and rival. Do you agree?
 
  What will be an ideal response?

Question 2

The above table has the demand for money schedule.
 
  a) If the Fed supplies 1.1 trillion dollars, what is the equilibrium interest rate?
  b) Discuss how equilibrium is restored if the interest rate is greater than the equilibrium rate found in part (a).

[Mholman93]

Answer to Question 1

No, private goods are excludable and rival, while public goods are nonexcludable and nonrival. Contrary to what your friend asserted, it is common resources rather than public goods that are nonexcludable and rival.

Answer to Question 2

a) The equilibrium interest rate is 4 percent.
b) If the interest rate is greater than 4 percent, there is an excess supply of money. In this case, to be rid of their extra money, people buy bonds. The price of bonds rises and so the interest rate falls until it reaches its equilibrium value, 4 percent. At this interest rate, there is no longer an excess supply of money because the quantity demanded equals the quantity supplied.