Macroeconomics 13th Edition by William Baumol ,Alan Blinder

Exercise 1

Explain what a $5 billion increase in bank reserves will do to real GDP under the following assumptions:
a. Each $1 billion increase in bank reserves reduces the rate of interest by 0.5 percentage point.
b. Each 1 percentage point decline in interest rates stimulates $30 billion worth of new investment.
c. The expenditure multiplier is two.
d. The aggregate supply curve is so flat that prices do not rise noticeably when demand increases.