The problem:

The investment demand and the market for money for a country are shown in the graphs below. Suppose the economy currently has a recessionary gap of $100 billion and the MPC is 0.8. Indicate the money supply that the central bank should target if it wants to bring real GDP to the fullemployment level. Instructions: Use the tool provided 'sz' to draw the new money supply curve. Use the graph on the right to plot your line such that the first point touches the horizontal axis. Investment Demand 12% 10% o\\ oo 39 39 4s 69 Real rate of interest (percent) N 39 0 $10 $20 $30 $40 $50 $60 Amount of investment (billions of dollars) The Market for Money 12% 5 Tools m1 / a 10% ac) smz 8 g 8% E 9 3 6% C 'C O Q) E 4% a 0) ' 2% DI'n1 o 0 $50 $100 $150 $200 $250 $300 Money demanded and supplied (billions of dollars)