In a short period of temporary insanity, Jerome Powell, Chairman of the Fed, dons a Santa Claus suit the day after Thanksgiving and stuffs a toy bag full of brand new, never before circulated crisp $100 bills. He rents a helicopter and instructs the pilot to fly as low as possible over the streets of Washington, D.C. Hanging out the side of the helicopter, he slowly dumps the bag containing a total of $100 million to the cheering crowds gathering below. He simply yells “Happy Black Friday shopping to all and to all a rich night!” Holding all else equal, answer the following question: Mr. Powell’s sanity returns and he is horrified to learn of his behavior. He quickly sets out to reverse any effects that his little episode may have had on the economy. What action do you expect that he and the Fed will take to combat this unplanned change in the size of the money supply? How will that action actually work to decrease the money supply?
In a short period of temporary insanity, Jerome Powell, Chairman of the Fed, dons a Santa Claus suit the day after Thanksgiving and stuffs a toy bag full of brand new, never before circulated crisp $100 bills. He rents a helicopter and instructs the pilot to fly as low as possible over the streets of Washington, D.C. Hanging out the side of the helicopter, he slowly dumps the bag containing a total of $100 million to the cheering crowds gathering below. He simply yells “Happy Black Friday shopping to all and to all a rich night!”
Holding all else equal, answer the following question:
Mr. Powell’s sanity returns and he is horrified to learn of his behavior. He quickly sets out to reverse any effects that his little episode may have had on the economy. What action do you expect that he and the Fed will take to combat this unplanned change in the size of the money supply? How will that action actually work to decrease the money supply?
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