How much will aggregate demand increase if investors borrow

Reference no: EM13222374

Suppose the Fed decided to purchase $30 billion worth of government securities in the open market. What impact would this action have on the economy?

(a) How would M1 be affected initally?

(b) By how much will the banking system lending capacity increase if the reserve requirement is 25%?

(c ) Must the interest rate rise or fall to induce investors to utilize this expanded lending capacity?

(d) By how much will aggregate demand increase if investors borrow and spend all the newly Available credit?

Reference no: EM13222374

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