Suppose the Fed sells $500 billion in government securities and the reserve ratio is 0.2. Calculate the resulting change in the money supply and enter it below. Be certain to include a negative sign. Number $ billion Next, show the impact this open market operation will have on the graph to the right in the short run. Which of the following describes the impact on inflation and real gdp the Fed's policy has in the short run? Inflation decreases and real GDP increases Inflation increases and real GDP decreases Inflation increases and real GDP increases Inflation decreases and real GDP decreases Inflation rate 10 9 8 7 (O 3 2 1 0 Solow Growth Curve Short-run aggregate supply * Aggregate demand 1 2 3 4 5 6 7 Real GDP growth rate 8 9 10

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