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Unformatted text preview: Recall Monetary Base is defined as: Excess Reserves + Currency in Circulation. 4. Show the effect graphically in the federal funds market. Be sure to label your graph and show the change in the fed funds interest rate. Assume the fed funds starts at 3% . S S D Q r 3.5% 3% 5. Assuming normal behavior graph the change to the yield curve. 6. What happens to longer term interest rates and investment? The longer term interest rate will increase which will lead to a decrease in investment. 7. What happens to the rate of GDP growth and the inflation rate? Slower GDP growth and less inflation. Rate of Return Time of Maturity 3% 3.5%...
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