Problem
Suppose that each 0.1-percentage-point decrease in the equilibrium interest rate induces a $10 billion increase in real planned investment spending by businesses. In addition, the investment multiplier is equal to 5, and the money multiplier is equal to 4. Furthermore, every $20 billion increase in the money supply brings about a 0.1-percentagepoint reduction in the equilibrium interest rate. Use this information to answer the following questions under the assumption that all other things are equal.
a. How much must real planned investment increase if the Federal Reserve desires to bring about a $100 billion increase in equilibrium real GDP?
b. How much must the money supply change for the Fed to induce the change in real planned investment calculated in part (a)?
c. What dollar amount of open market operations must the Fed undertake to bring about the money supply change calculated in part (b)?
The response should include a reference list. Double-space, using Times New Roman 12 pnt font, one-inch margins, and APA style of writing and citations.