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If the money supply is: The interest rate is:
• $100 billion10%
120 billion 8%
140 billion 6%
160 billion 4%
120 billion 2%
If the interest rate is: Investment spending is:
Assume that equilibrium GDP is $400 billion, potential GDP is $500 billion, the marginal propensity to consume is 9/10, the interest rate is 8%, investment spending is $20 billion, the money supply is $120 billion, and the reserve requirement is 1/10. By how much and in what direction should the Fed change the monetary base?
Explain it with formula.
Can anyone help me to resolve this problem..
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