(6) Assuming no change in monetary policy, what change in government purchases would restore full employment? AG = (7) Assuming no change in fiscal policy, what change in interest rate (4 r) would restore full employment? Ar= (8) In case of (5), assume that the increase in government purchases raises the demand for money in (b) monetary sector from r= 50 - M tor = 55 - M. This causes the equilibrium interest rate to rise to a new level (r**) and the investment to be reduced to a new level (1* *). Find out and |+* (9) Continuing from (8), the increase in interest rate caused by increased government purchases implies the cost of borrowing will increase and therefore, it will reduce private investment. This phenomenon is defined as (10) If the Federal Reserve System held the Money supply constant at the level M*=40 and allowed the interest rate to adjust, the change in aggregate demand resulting from the increase in government spending would have been (a) Smaller but still positive (b) lager still positive (c) smaller but still negative (d) larger still negative