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Suppose the Fed decided to sell $400 billion worth of government securities in the open market (assume all payments are are directly deposited into or withdrawn from the banking system)

Economics

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Suppose the Fed decided to sell $400 billion worth of government securities in the open market (assume all payments are are directly deposited into or withdrawn from the banking system). What impact would this action have on the economy? Specifically, answer the following questions:

Instructions: Enter your responses as a whole number. If the lending capacity or aggregate demand falls be sure to include a negative sign (-) with your answer.

a. How will M1 be affected initially?

• decrease by $400 billion

b. By how much will the banking system’s lending capacity change if the reserve requirement is 20 percent?

     $ ___ billion

c. How must interest rates change to induce investors to utilize this change in lending capacity?

     Interest rates must rise.

d. By how much will aggregate demand initially change if investors change their behavior because of this change in available credit?

     $ ___billion

Need help with part B and part D, this question has been answered on here before but the answers are incorrect