Homework: Chapter 16 Appendix E Homework Score: 0 of 1 pt Text Problem E-4 ts 2

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Homework: Chapter 16 Appendix E Homework Score: 0 of 1 pt Text Problem E-4 ts 2 of 2 (1 complete) HW Score: 16.67%, 0.33 of 2 pts ork E Question Help /Test Assume that the following conditions exist a. All banks are fuly loaned up- there are no excess reserves, and desired excess reserves are always zero c. The planned investment schedule is such that at a 4 percent rate of interest, Investment $1380 billion. At 5 percent, investment is $1350 illion d. The investment multiplier is 3 e. The initial equilibrium level of real GDP is $14 trillion. f. The equilibrium rate of interest is 4 percent Now the Fed engages in contractionary monetary policy. It sells $2 billion worth of bonds, which reduces the money supply which in turn raises market rate of interest by 1 percentage point. Calculate the decrease in money supply after FED's sale of bonds: $ 14 billion Equilibrium GDP decreases by S billion. Enter your answer in the answer box and then click Check Answer 1 pemaining part ^ 9 40 11/30/2017 here to search

Explanation / Answer

Investment multiplier = Change in GDP / Change in Investment

3 = Change in GDP / (1380-1350)

Change in GDP = $90 billion

GDP decreases by $90 billion.

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