Effect of lower required reserve ratio on the money market

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Reference no: EM13834108

GRAPHS ARE NEEDED

Consider the simple model of goods/services market (with government and foreign trade AE=C+I+G+Xn) and the money market (Dm-Sm). Suppose the following policy mix is carried out:

1) Personal income tax is raised

2) The central bank reduces the required reserve ratio

Look at the markets separately in questions (a) and (b)

A) What would be the effect of higher personal income tax on the goods/services market?

Show the changes on AE-Y graph and discuss them

B) What would be the effect of lower required reserve ratio on the money market?

Show the changes on graph and discuss them

Reference no: EM13834108

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