6. Suppose the Fed decided to purchase $60 billion worth of government securities on the open market. a) If the reserve ratio is 20 percent, what is the maximum potential change in the money supply? b) Why might the money supply not grow by this much? c) What will this purchase by the Fed do to interest rates? Why? d) Under what circumstances (recession or inflation) would the Fed be pursuing such an open market policy? e) To attain those same objectives, what should the Fed do (increase or decrease) with the a. discount rate? b. reserve requirement?
6. Suppose the Fed decided to purchase $60 billion worth of government securities on the open market. a) If the reserve ratio is 20 percent, what is the maximum potential change in the money supply? b) Why might the money supply not grow by this much? c) What will this purchase by the Fed do to interest rates? Why? d) Under what circumstances (recession or inflation) would the Fed be pursuing such an open market policy? e) To attain those same objectives, what should the Fed do (increase or decrease) with the a. discount rate? b. reserve requirement?
Chapter1: Making Economics Decisions
Section: Chapter Questions
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5. To increase aggregate demand, what type of monetary policy (expansionary or
contractionary) would the Fed adopt?
ExpansionaRy
6. Suppose the Fed decided to purchase $60 billion worth of government securities on the open
market.
a) If the reserve ratio is 20 percent, what is the maximum potential change in the money
supply?
b) Why might the money supply not grow by this much?
c) What will this purchase by the Fed do to interest rates? Why?
d) Under what circumstances (recession or inflation) would the Fed be pursuing such an
open market policy?
e) To attain those same objectives, what should the Fed do (increase or decrease) with the
a. discount rate?
b. reserve requirement?
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