The table below gives information on money demand (MD) and investment (I) for the country of Freedonia. MD and I are in billions of dollars. r is the interest rate.

r MD I

10 300 50

9 360 60

8 420 70

7 480 80

6 540 90

5 600 100

4 660 110

The reserve requirement for Freedonia is 25% and the MPS is .20. Assume that the money supply is currently $300 billion.

Rufus T. Firefly, the president of the Bank of Freedonia, the central bank, determines that Freedonia's GDP is $150 billion below full employment GDP. He wants to use monetary policy to end this recession. How much in government bonds does Rufus need to purchase in order to raise GDP by $150 billion? (Note: as President, he has all the authority needed to do this).

A. First, help Rufus out by finding out the following:

1) the money multiplier

2) the simple multiplier

3) the current interest rate.

B. Now that you've done that:

1) the change in investment that's needed to end the recession

2) the change in the interest rate

3) the change in the money supply

4) the size of the bond purchase that Rufus will need to make.