How will this change affect output in the short run

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Suppose that a fall in house prices decreases wealth substantially.

a. How will this change affect output in the short run?

b. Suppose the Federal Reserve wants to prevent the impact you found in part (a). Should it increase the real interest rate, decrease it, or leave it unchanged (or is it not possible to tell)?

c. How, if at all, should the Federal Reserve change the supply of money in order to bring about this change in the real interest rate?

Reference no: EM132503720

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