n 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 questions: a. If reserve requirements for depository institutions are set at 5%, what would you expect the maximum possible change in the size of the money supply to be? What factors could prevent that full maximum change from occurring?
n 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 questions:
a. If reserve requirements for depository institutions are set at 5%, what would you expect the maximum possible change in the size of the money supply to be? What factors could prevent that full maximum change from occurring?
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