ECO 201-1N2 Homework: Chapter 16 Appendix E Homework Score: 0 of 1 pt 1 of 2 (2

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ECO 201-1N2 Homework: Chapter 16 Appendix E Homework Score: 0 of 1 pt 1 of 2 (2 complete) HW Score: 33.33%, 0.67 of 2 pts X) Text Problem E-2 Question Help : * Suppose that each 0.1-percentage-point increase in the equilibrium interest rate induces a $3 bilion decrease in real planned investment spending by businesses. In addition, the investment multiplier is equal to 5, and the money multiplier is equal to 3. Furthermore, every $8 billion decrease in the money supply brings about a 0.1-percentage-point increase in the equilibrium interest rate. Use this information to answer the following questions under the assumption that all other things are equal. Calculate by how much the real planned investment must decrease if the Federal Reserve desires to bring about an $80 billion decrease in equilibrium real GDP $ 16 billion Enter your response rounded to one decimal place) Calculate by how much must the money supply decrease for the Fed to induce the change in real planned investment to bring about an $80 billion decrease in equilibrium real GDP S billion. (Enter your response rounded to one decimal place) Enter your answer in the answer box and then click Check Answer

Explanation / Answer

80 billion decrease in equilibrium real gdp, needs to 16 billion decrease in spending, and 16 billion decrease in spending needs to (16/3)*0.1=0.53% increase in equilibrium real interest rate,0.53% increase in real interest rate needs to ( 0.53/0.1)*8= 42.67 billion decrease in money supply.

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