Answer Happy

Question 3 (2 marks): a. Use a loanable funds diagram to analyze the impact of an increase in business investment 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 percent of the cash-deposit ratio. Assume that the central bank sells $3 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.