2. Suppose banks install automatic teller machines on every block and, by making cash readily available, reduce
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2. Suppose banks install automatic teller machines on every block and, by making cash readily available, reduce the amount of money people want to hold.
a. Assume the Fed does not change the money supply.
According to the theory of liquidity preference, what happens to the interest rate? What happens to aggregate demand?
b. If the Fed wants to stabilize aggregate demand, how should it respond?
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