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Expalin what a $5 Billion increase in bank reserves

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Expalin what a $5 Billion increase in bank reserves will do to real GDP under the following assumptions;a) Each $1 billion increase in bank reserves reduces the rate of interest by 0.75%;b)Each 1% point decline in interest rates stimulates $50 Billion worth of new investment.;c)The expenditure multiplier is 2.5;d) The aggregate supply curve is so flat that prices do nt rise noticeably when demand increases.

 

Paper#28482 | Written in 18-Jul-2015

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