- Please Include Steps And Explanations 1 (62.41 KiB) Viewed 57 times
Please include steps and explanations
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Please include steps and explanations
Please include steps and explanations
The loan demand function takes the following form: MP=1000-25i2 where it is the loan interest rate. The risk-related mark-up is equal to 1 percentage point. The reserve ratio is 10 percent and the official (CB's) interest rate equals 7 percent. The central bank decides to decrease the official interest rate to 3 percent. What will be the type (purchase or sale) and value of open market operations that the central will have to perform in order to sustain the new level of interest rate? (The reserve ratio remains at 10 percent.)
The loan demand function takes the following form: MP=1000-25i2 where it is the loan interest rate. The risk-related mark-up is equal to 1 percentage point. The reserve ratio is 10 percent and the official (CB's) interest rate equals 7 percent. The central bank decides to decrease the official interest rate to 3 percent. What will be the type (purchase or sale) and value of open market operations that the central will have to perform in order to sustain the new level of interest rate? (The reserve ratio remains at 10 percent.)