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The money multiplier is 3.2 The interest rate will change by 2.5% for each $100 billion change in the money supply. The level of investment
The money multiplier is 3.2 The interest rate will change by 2.5% for each $100 billion change in the money supply. The level of investment will change by $25 billion for each 1% change in interest rates. The level of income will change by $8 billion for each $2.7 billion change in investment. The level of unemployment is 4.9% and will change by 0.2% for each $150 billion change in income. And, now one more wrinkle to our story - the level of inflation is 6.5% and will change by 0.25% for each $70 billion change in income greater than an initial change of $100 billion. [For example, if income falls by $80 billion, there would be no change in inflation, because the change was less than $100 billion. But, if income falls by $156 billion, then inflation would fall by 0.2% to 6.3%, because $56 billion is 80% of $70 and 80% of .25% is .20%.] 8. What will be the new inflation rate if the Fed sold $32 billion worth of bonds? [Express to two decimal places.] 9. The FOMC has decided to target the inflation rate at 5.5%. To do this what must be the level of bond purchases/sales? [Use a "+" for purchases and a "-" for sales in your answer. Express to one decimal place.]
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