Now suppose the Fed lowers the reserve requirement to 10 percent, but banks choose to hold another 2.5 percent of deposits as excess reserves. True or False: The money multiplier will remain unchanged. True O False True or False: As a result, the overall change in the money supply will remain unchanged. O True O False

ENGR.ECONOMIC ANALYSIS
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ISBN:9780190931919
Author:NEWNAN
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Chapter1: Making Economics Decisions
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So I have the first part down but I am not so sure of my answers for the true or false questions. I don't think I'm understanding them correctly

Suppose that the reserve requirement for checking deposits is 12.5 percent and that banks do not hold any excess reserves.
If the Fed sells $2 million of government bonds, the economy's reserves decrease
by
$2 million, and the money supply will
decrease
by
$16 million.
Now suppose the Fed lowers the reserve requirement to 10 percent, but banks choose to hold another 2.5 percent of deposits as excess reserves.
True or False: The money multiplier will remain unchanged.
True
False
True or False: As a result, the overall change in the money supply will remain unchanged.
True
False
Transcribed Image Text:Suppose that the reserve requirement for checking deposits is 12.5 percent and that banks do not hold any excess reserves. If the Fed sells $2 million of government bonds, the economy's reserves decrease by $2 million, and the money supply will decrease by $16 million. Now suppose the Fed lowers the reserve requirement to 10 percent, but banks choose to hold another 2.5 percent of deposits as excess reserves. True or False: The money multiplier will remain unchanged. True False True or False: As a result, the overall change in the money supply will remain unchanged. True False
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