Answer Happy

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