Quiz: Chapter 16 Appendix E Quiz This Question: 1 pt Submit Quiz 2 of 4 (0 compl

Question

Quiz: Chapter 16 Appendix E Quiz This Question: 1 pt Submit Quiz 2 of 4 (0 complete) This Quiz: 4 pts possible Suppose that each 0.1 percentage point decrease in the equilibrium interest rate induces a $10 bilion increase in real planned investment spending by businesses. In addition, the autonomous spending multiplier is 4 and the money multiplier is equal to 2. Furthermore, every $20 billion increase in the money supply brings about a 0.1 percentage point reduction in the equilibrium interest rate How much must real planned investment increase if the Fed desires to bring about a $400 billion increase in real GDP? $ billion. (Round your answer to a whole number) What dollar amount of open market operations must the Fed undertake to bring about the money supply change necessary to bring about a $400 billion increase in real GDP? S billion. (Round your answer to a whole number) 91. Enter your answer in each of the answer boxes

Explanation / Answer

a. Investment multiplier = 1/1-MPC which is also spending multiplier = 4.

So a change in real GDP of $400, will bring about a chnage of 400 / 4 or $100 billion increase in planned investment.

b. Required OMO = change in money supply / money multiplier.

change in money supply = 400/4 * 2 = $200

Required OMO = 200/2 = $100 billion.

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