(Monetary Control) Suppose the money supply is currently $500 billion and the Fed wishes to increase it by $100 billion.
a. Given a required reserve ration of 0.25, what should it do?
b. If it decided to change the money supply by changing the required reserve ratio, what change should it make? Why may the Fed be reluctant to change the reserve requirement?
1 answer
The Feds will have to purchase twenty five billion dollars in government securities in order for interest to be applied increasing the funds to $100 billion.
2 answers