6. The Federal Reserve and the money supply A-Z Suppose the money supply (as measured by checkable deposits) is currently $300 billion. The required reserve ratio is 20%. Banks hold $60 billion in reserves, so there are no excess reserves. The Federal Reserve ("the Fed") wants to decrease the money supply by $17.5 billion, to $282.5 billion. It could do this through open-market operations or by changing the required reserve ratio. Assume for this question that you can use the oversimplified money multiplier formula. If the Fed wants to decrease the money supply using open-market operations, it should, If the Fed wants to decrease the money supply by adjusting the required reserve ratio, it should bong billion worth of U.S. government bonds. the required reserve ratio.
6. The Federal Reserve and the money supply A-Z Suppose the money supply (as measured by checkable deposits) is currently $300 billion. The required reserve ratio is 20%. Banks hold $60 billion in reserves, so there are no excess reserves. The Federal Reserve ("the Fed") wants to decrease the money supply by $17.5 billion, to $282.5 billion. It could do this through open-market operations or by changing the required reserve ratio. Assume for this question that you can use the oversimplified money multiplier formula. If the Fed wants to decrease the money supply using open-market operations, it should, If the Fed wants to decrease the money supply by adjusting the required reserve ratio, it should bong billion worth of U.S. government bonds. the required reserve ratio.
Chapter1: Making Economics Decisions
Section: Chapter Questions
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Transcribed Image Text:6. The Federal Reserve and the money supply
A-Z
Suppose the money supply (as measured by checkable deposits) is currently $300 billion. The required reserve ratio is 20%. Banks hold $60 billion in
reserves, so there are no excess reserves.
The Federal Reserve ("the Fed") wants to decrease the money supply by $17.5 billion, to $282.5 billion. It could do this through open-market
operations or by changing the required reserve ratio. Assume for this question that you can use the oversimplified money multiplier formula.
If the Fed wants to decrease the money supply using open-market operations, it should,
If the Fed wants to decrease the money supply by adjusting the required reserve ratio, it should
bong
billion worth of U.S. government bonds.
the required reserve ratio.
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