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Gross rate of return on capital

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Reference no: EM133124901

Consider an economy in which the Central Bank is willing to loan any quantity of reserves to banks. Let the gross rate of return on capital be :1:

1. What amount would a bank choose to borrow if the central bank rate of discount Window loans is less than x?

2. How would your answer change if capital has decreasing marginal returns?

Reference no: EM133124901

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