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Consider our 3-period OLG model with reserve requirements. The Central Bank starts allowing banks to borrow unlimited amounts to satisfy their reserves, but imposes an
Consider our 3-period OLG model with reserve requirements. The Central Bank starts allowing banks to borrow unlimited amounts to satisfy their reserves, but imposes an interest rate v . Which of the following statements best describes the resulting equilibrium if v is equal to the one-period rate of return on capital, x? Question 2 options: Any level of borrowing is possible, but the equilibrium price level is fixed. Any level of borrowing is possible and the equilibrium price level is indeterminate. No bank will borrow from the Central Bank. Banks will borrow unlimited amounts and the equilibrium price level is infinity
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