Assume that the following conditions exist a All banks are fully loa...

Assume that the following conditionsâ€‹ exist: a. All banks are fully loanedâ€‹ up- there are no...

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Economics

Assume that the following conditionsâ€‹ exist:
a. All banks are fully loanedâ€‹ up- there are no excessâ€‹reserves, and desired excess reserves are always zero.
b.
The money multiplier is
77.
â€ƒâ€ƒâ€ƒ
c. The planned investment schedule is such that at a 4 percentrate ofâ€‹ interest, Investment
â€‹=$14501450
billion. At 5â€‹ percent, investment is
â€‹$14201420
billion.
d. The investment multiplier is
44.
e..
The initial equilibrium level of real GDP is
â€‹$1313
trillion.
f. The equilibrium rate of interest is 4 percent
Now the Fed engages in contractionary monetary policy. Itsells
â€‹$22
billion worth ofâ€‹ bonds, which reduces the moneyâ€‹ supply, whichin turn raises the market rate of interest by 1 percentagepoint.
Calculate the decrease in money supply afterâ€‹ FED's sale ofâ€‹bonds: __billion
Equilibrium GPC decreases by: _ billion
Calculate the new equilibrium level of real GPC _ trillion

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Solution All banks are fully loaned up there are no excess reserves and desired excess reserves are always zero The money multiplier is 7 The planned investment schedule is such that at a 4 percent rate of interest Investment 1450 billion At 5 percent See Answer

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