Money market is initially in equilibrium

Reference no: EM13687622

Employing Figure 4-2 above, the money market is initially in equilibrium at point G and after the economy moves to equilibrium, the Federal Reserve increases the money supply by 500. We would observe:

1) Y rises to 4000 as interest rates remain stable.

2) The interest rate first rises to 7.5% and Y to 3500.

3) The interest rate first rises to 7.5% then falls to 5%.

4) The economy moves from point G to C, to F then D.

Reference no: EM13687622

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