5. Consider an increase in economic activity (potential output) that causes the demand for money to shift outward. a. What would you expect to happen to the real interest rate and short run output if the Federal Reserve Bank targets a quantity of money supply in the economy. b. How does your answer change if the Federal Reserve Bank instead targets a nominal interest rate? How can the Federal Reserve target the interest rate instead of the money supply? C.

5. Consider an increase in economic activity (potential output) that causes the demand for money to shift outward. a. What would you expect to happen to the real interest rate and short run output if the Federal Reserve Bank targets a quantity of money supply in the economy. b. How does your answer change if the Federal Reserve Bank instead targets a nominal interest rate? How can the Federal Reserve target the interest rate instead of the money supply? C.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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