What is the effect on the economy money supply

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Suppose that the required reserve ratio for checking deposits us 10% and that banks do not hold any access reserves.

a. If the Fed sells $1 million of government bonds, what is the effect on the economy’s money supply?

b. Use a money market diagram to show the impact of this policy in the money market-show what happens to equilibrium interest rates and money stock.

c. Use an AS/AD diagram to illustrate the impact of this policy on equilibrium price level and real GDP.

Reference no: EM13975097

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