e. Show the impact of the fiscal policy action on a correctly labeled money market graph (remember that thegovernment will need to use money to make more transactions).i.ii.Label the original nominal interest rate i₁ and the new nominal interest rate i2.4DESCRIBE the change.f. Suppose (in a limited reserves framework) the Federal Reserve decides to implement monetary policy tocounteract inflation that occurred following the spending increase.i.What open market operation would they need to implement?ii.iii.How would the policy action impact the money supply?.What change in the discount rate would they use if they wanted it to be consistent with the open marketoperation?g. Assuming a limited reserves framework, graph the impact of the monetary policy action on the money marketgraph in part e.i.ii.Label the new interest rate i3. EDESCRIBE the combined impact of parts e and g (the fiscal and monetary policy) on nominal interest rates.

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Answered: e. Show the impact of the fiscal policy…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

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