Q. Assume a Calculator virus disables the nation's automatic teller machines , making withdrawals from bank accounts less convenient. As a result, people want to keep more cash on has well as, increasing the demand as well as for money.
A. Assume the Fed does not change the money supply. According to the theory of liquidity preference, what happens to the interest rate? What happens to aggregate demand as well as?
B. If instead the Fed wants to stabilize aggregate demand as well as, how should it change the money supply?
C. If it wants to accomplish this change in the money supply using open-market operations, what should it do?