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The banking system has $10 million in reserves, the reserves requirement is 20 percent, and there are no excess reserves. The public holds 20 percent
The banking system has $10 million in reserves, the reserves requirement is 20 percent, and there are no excess reserves. The public holds 20 percent of cash-deposit ratio. Assume that the government purchases $5 million bonds in open market operation. Calculate the change in money supply resulted from the above policy and shows its effects on interest rates and money quantity in the money market diagram.
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