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Explain how each of the following developments would affect the supply of money, the demand for money, and the interest rate. Illustrate your answers with diagrams. a. The Fed’s bond traders buy bonds in open-market operations. b. An increase in credit-card availability reduces the amount of cash people want to hold. c. The Federal Reserve reduces banks’ reserve requirements. d. Households decide to hold more money to use for holiday shopping. e. A wave of optimism boosts business investment and expands aggregate demand.

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Brief Principles of Macroeconomics...

8th Edition
N. Gregory Mankiw
Publisher: Cengage Learning
ISBN: 9781337091985
BuyFind

Brief Principles of Macroeconomics...

8th Edition
N. Gregory Mankiw
Publisher: Cengage Learning
ISBN: 9781337091985

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Chapter
Section
Chapter 16, Problem 1PA
Textbook Problem

Explain how each of the following developments would affect the supply of money, the demand for money, and the interest rate. Illustrate your answers with diagrams.

a. The Fed’s bond traders buy bonds in open-market operations.

b. An increase in credit-card availability reduces the amount of cash people want to hold.

c. The Federal Reserve reduces banks’ reserve requirements.

d. Households decide to hold more money to use for holiday shopping.

e. A wave of optimism boosts business investment and expands aggregate demand.

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