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# exam 2 answers - d ER = 90,000 rrr = 10 90,000/0.1 =...

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Unformatted text preview: d. ER = 90,000; rrr = 10% 90,000/0.1 = \$900,000 2. a. AE = 520 + 0.8Y b. Y* = 2600 c. Y* = 2200 3. a. bonds b. No, M1 will decrease. The government will sell bonds to finance the deficit which will decrease M1. 4. The discount rate is the rate at which commercial banks borrow money from the Fed. When commercial banks borrow from the Fed, this in itself does not impact M1. M1 is only impacted when commercial banks make loans to the public. There are many reasons why commercial banks may not increase their loans (to you and I) just because the Fed lowers the discount rate....
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