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Use the money demand and money supply model to show the money market in equilibrium with an interest

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Use the money demand and money supply model to show the money market in equilibrium with an interest

Use the money demand and money supply model to show the money market in equilibrium with an interest rate of 5 percent and the quantity of money of $800 billion. Suppose the Federal Reserve increases the money supply to $850 billion. At the previous equilibrium interest rate of 5 percent, will households and firms now be holding more money or less money than they want to hold, and will they be buying or selling short-term financial assets? At the new equilibrium interest rate, households and firms will desire to hold the entire $850 billion of the money supply. What causes households and firms to want to hold the additional $50 billion of the money supply?

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Essentials of Economics

Edition: 4^th

Authors: Hubbard, O'Brien

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Tidy Author

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8 years ago

Thank you, thank you, thank you!

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Thanks for your help!!

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