Determine market interest rate

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Reference no: EM1370855

Q. (Monetary Policy and an Expansionary Gap) Suppose Fed wishes to use monetary policy to close an expansionary gap.

a. Should Fed increase or decrease money supply?

b. If Fed uses open-market operations, should it buy or sell government securities?

c. Determine where each of following increases, decreases, or remains unchanged in short run: market interest rate, quantity of money demanded, investment spending, aggregate demand, potential output, price level and equilibrium real GDP.

Reference no: EM1370855

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