Question 3 (2 marks): a. Use a loanable funds diagram to analyze the impact of a decrease in government deficit on the i

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Question 3 2 Marks A Use A Loanable Funds Diagram To Analyze The Impact Of A Decrease In Government Deficit On The I 1 (50.65 KiB) Viewed 20 times

Question 3 (2 marks): a. Use a loanable funds diagram to analyze the impact of a decrease in government deficit on the interest rate, investment and national saving. b. The banking system has $10 million in reserves, the reserve requirement is 20 percent, and there are no excess reserves. The public holds $10 million in cash. Assume that the central bank purchases $2 million government bonds in open market operations. Calculate the change in money supply resulted from the above policy and show its effects on interest rates and money quantity in the money market diagram.