I https://www.mathxl.com 2398centerwin.... @ ECO 201-1N2 Homework: Chapter 16 Ap

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I https://www.mathxl.com 2398centerwin.... @ ECO 201-1N2 Homework: Chapter 16 Appendix E Homework Score: 0 of 1 pt Text Problem E-4 2 of 2 (0 complete HW Score: 0%, 0 of 2 pts Assume that the following conditions exist E Question Help a. All banks are fully loaned b. The money multiplier is 7 c. The planned investment schedule is such that at a 4 percent rate of interest, Investment $1380 billion. At 5 percent d. The investment multiplier is 3 e. The initial equilibrium level of real GDP is S14 trilion. f. The equilibrium rate of interest is 4 percent up- there are no excess reserves, and desired excess reserves are always zero , investment is $1350 billion Now the Fed engages in contractionary monetary policy. It sells S2 billion worth of bonds, which reduces the market rate of interest by 1 percentage point. money supply, which in turn raises the Calculate the decrease in money supply after FED's sale of bonds billion Enter your answer in the answer box and then click Check Answer 2 ! 11:13 PM qa 11/29/2017 ^ we

Explanation / Answer

Amount of bonds sold by Fed = $2 billion

Money Multiplier = 7

Calculate decrease in money supply -

Decrease in money supply = Amount of bonds sold by Fed * Money Multiplier

Decrease in money supply = $2 billion * 7

Decrease in money supply = $14 billion

Thus,

The decrease in money supply after Fed's sale of bonds is $14 billion.

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