Use the following table to answer the next question. The money supply and investment are in billions. Money Supply (billions of dollars) $50 60 7% $100 6 110 70 5 120 80 4 130 90 3 140 Assume that the MPC is 0.8 and the reserve requirement is 0.1. If the Federal Reserve needs to increase aggregate demand by $100 billion at each price level to move the economy back to full employment and the current interest rate is 7%, then the Federal Reserve should bonds on the open market equal to A) buy, $2 billion B) sell, $4 billion OC) sell, $2 billion Interest Rate D) buy, $4 billion Investment (billions of dollars)

Use the following table to answer the next question. The money supply and investment are in billions. Money Supply (billions of dollars) $50 60 7% $100 6 110 70 5 120 80 4 130 90 3 140 Assume that the MPC is 0.8 and the reserve requirement is 0.1. If the Federal Reserve needs to increase aggregate demand by $100 billion at each price level to move the economy back to full employment and the current interest rate is 7%, then the Federal Reserve should bonds on the open market equal to A) buy, $2 billion B) sell, $4 billion OC) sell, $2 billion Interest Rate D) buy, $4 billion Investment (billions of dollars)

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Please answer question 4:
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I am having troubles understanding parts B & D. Not sure what formula(s) to use. Please double check answers. I have posted this twice and answers have been incorrect, I am not sure why though.
Suppose that the money demand function is (M/P)d = 1,000 − 100r, where r is the interest rate in percent. The money supply M is 1,000 and the price level P is 2. If the Fed wishes to raise the interest rate to 7 percent, what money supply should it set?