Stabilize aggregate demand

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Reference no: EM137795

Q. Suppose a computer virus disables the nation's automatic teller machines (ATM), manufacture departure s from bank accounts less suitable. As per result, people want to keep more cash on hand, increasing the demand for money.

A. Assume the Fed does not change the supply of money. As per the theory of liquidity preference, what happens to the interest rate? Elucidate what occurs to aggregate demand?

B. If instead the Fed wants to stabilize aggregate demand, how should it change the money supply?

C. Supply using open-market operations, if it wants to accomplish this change in the money, what should it do?

Reference no: EM137795

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