Question (8) [10%] Please calculate and solve the following questions. Steps are necessary. a. Conditions: Suppose MPC=0

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Question 8 10 Please Calculate And Solve The Following Questions Steps Are Necessary A Conditions Suppose Mpc 0 1 (233.6 KiB) Viewed 78 times

Question (8) [10%] Please calculate and solve the following questions. Steps are necessary. a. Conditions: Suppose MPC=0.8. Each 1% change in interest rate leads to a $30 billion change in planned investment demand. Each $20 billion change in the money supply leads to a 1% change in interest rate. The required reserve ratio is 20%. Question: What would happen to equilibrium real output if the central bank buys bonds by $4 billion? (5%) (Hint: please consider the flow of monetary policy => change in money supply => change in equilibrium interest rate => change in planned investment change in equilibrium output) = b. Conditions: The money demand curve is Md = 6000 – 8,000i + 0.87, where i denotes interest rate and Y is real output/income. Assume that aggregate income is 5,000 and equilibrium interest rate is 5%. Question: What is the level of money supply MS? (5%)