Question
Suppose that there is a decrease in real GDP due to a recession caused by COVID19 and the Federal Reserve implements an expansionary monetary policy
Suppose that there is a decrease in real GDP due to a recession caused by COVID19 and the Federal Reserve implements an expansionary monetary policy to improve the economy. What will happen to equilibrium interest rate and quantity of money in the money market? Show the results in a graph and summarize the results in words. Label Y-axis and X-axis clearly and show the initial money supply and money demand as MS0and MD0and show the changed money supply and money demand as MS1and MD1and show the change in equilibrium interest rate and quantity of money as arrows. (6 points)
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