What is the resulting impact on the money supply

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"An increase in money causes the interest rate to rise. But a rise in the interest rate causes people to demand less money. It follows that increases in money demand cancel themselves out, and the interest rate is not affected." Is this correct? Why or why not? If the Fed sells $500 billion in government securities, and the required reserve ratio is .2, what is the resulting impact on the money supply? Illustrate your answer using the money demand and money supply curves. Be certain to explain how households and firms respond to the Fed action to bring about the new equilibrium interest rate.

Reference no: EM131377247

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