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Suppose the central bank has decided to buy $0.5 of reserves in an economy where FFR = 154 - 5*Q, where Q is Quantity of
Suppose the central bank has decided to buy $0.5 of reserves in an economy where FFR = 154 - 5*Q, where Q is Quantity of reserves. How does this affect the interest rate in the money market (which we also sometimes called the financial market). Meaning, does market interest go up or down and by how much? Assume money demand is given by: Md = 6 + 0.25Y - 5r. (20 pts) Ps: In this economy the central bank has set the required reserve ratio to 10 percent and the initial supply of reserves was 30. Real GDP is 5000 & money supply is 1200.
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