Assume that the following conditions exist:

a. All banks are fully loaned up-there are no excess reserves, and desired excess reserves are always zero.

b. The money multiplier is 3.

c. The planned investment schedule is such that at a 6 percent rate of interest, investment is $1,200 billion; at 5 percent, investment is $1,225 billion.

d. The investment multiplier is 3.

e. The initial equilibrium level of real GDP is $18 trillion.

f. The equilibrium rate of interest is 6 percent. Now the Fed engages in expansionary monetary policy. It buys $1 billion worth of bonds, which increases the money supply, which in turn lowers the market rate of interest by 1 percentage point. 

Instructions:

Determine how much the money supply must have increased, and then trace out the numerical consequences of the associated reduction in interest rates on all the other variables mentioned.