Scenario 13.1 Assume the following conditions hold. a. At all banks, excess reserves are zero. The deposit expansion multiplier is 3. The investment spending function is as illustrated in the figure...

Extracted text: Scenario 13.1 Assume the following conditions hold. a. At all banks, excess reserves are zero. The deposit expansion multiplier is 3. The investment spending function is as illustrated in the figure below. b. C. Now the Federal Reserve engages in an open market operation by purchasing $1 billion worth of government bonds from private bond dealers, who then deposit the $1 billion in the banks. This acts to lower the equilibrium interest rate by 2 percent. 2- 20 40 60 80 100 120 Planned investment (billions of dollars) 0.8, then the this Fed action will Refer to Scenario 13.1.If the marginal propensity to consume increase real GDP by Interest Rate (percent)


Extracted text: lowes the equiliheim iteest by 2 percet 20 40 60 0 100 120 Planned inveament ons of dulla Refer to Scenario 131f the margunal propemsity to consume is 0.8, them the this Fed action will increase real GDP by O 200 billion O 100 billion O s billion O 20 billion O I billion