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In an economic environment where the initial policy interest rate (ip) and the equilibrium interest rate (i.) are equal in the reserve market, the
In an economic environment where the initial policy interest rate (ip) and the equilibrium interest rate (i.) are equal in the reserve market, the central bank plans to lower the required reserve ratios in order to recover from the economic recession. If this monetary policy measure is implemented, a. How a divergence occurs between the policy interest rate and the equilibrium interest rate? b. What kind of measure should the central bank take to keep the equilibrium and the policy interest rates equal?
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