Explain how changes in the money supply can result in changes in real GDP.
Answer to relevant QuestionsWhat is meant by the fractional reserve system? Why is it fundamental to modern banking? How does a bank end up with excess reserves? When the Fed sells government bonds, the nation's money supply decreases. Explain how this works. To illustrate, you can construct your own bank transactions and changes in the assets and liabilities of the Fed and of banks. How do classical economists explain unemployment? Explain why unemployment insurance is a good example of an automatic stabilizer.
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