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(f ) Now go back to the equilibrium in part c. The Fed decides to follow a contractionary policy but rather than explicitly saying what

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(f ) Now go back to the equilibrium in part c. The Fed decides to follow a contractionary policy but rather than explicitly saying what it will do to money supply, it says it would like to raise the interest rate by 2. Do the Fed's traders have to sell or buy government bonds? What is the dollar value of this sale or purchase? (Hint: The Fed does not change the IS curve. Given the new interest rate r they want to implement, there is only one level of output Y that is consistent with equilibrium in the loanable funds market. Once you have Y and r, you can find the demand for real money balances and the level of money supply that would ensure equilibrium in the money market)

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