Velocity affect the impact of the stabilization policy

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Reference no: EM13977018

Explain how the velocity of money is likely to change when the following stabilization policies are undertaken. How will this change in velocity affect the impact of the stabilization policy? (Hint: In each case, think about the effect of the policy upon interest rates, and the effect of interest rates upon velocity).

a) The government increases its spending.

b) The Fed engages in open market sales of government securities.

c) The Fed lowers the required reserve ratio of commercial banks.

d) The government raises the income tax rate.

Reference no: EM13977018

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