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?

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter6: Consumer Choices

Section: Chapter Questions

Problem 14CTQ: The rules of politics are not always the same as the rules of economics. In discussions of setting...

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