Money Demand =8750-500i Loanable Funds Demand = 2000 –100i Initial Reserves: $50

Question

Money Demand =8750-500i Loanable Funds Demand = 2000 –100i Initial Reserves: $500 Y1=15600 Y2=14000 Reserve Ratio: 8% MPC=0.8 Tax Revenue: $1100 Govt Purchases: $1000 Suppose the Government is implementing fiscal policy. What is the new level of Government purchases? Find the new level of taxation. What is the initial demand for Loanable funds/Investment? Suppose that the Fed implements monetary policy to return the economy to equilibrium. What value of bonds should the Fed buy/sell? Suppose the Fed decides to change the reserve requirement instead. What will the new reserve requirement be?

Explanation / Answer

Money Demand =8750-500i Loanable Funds Demand = 2000 –100i Initial Reserves: $50

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