. Describe in detail the differences between the three hypothetical countries money supplies, money multipliers, and likely impacts on each economy. 2. Explain how each of the following situations changes the quantity of money (money supply) in the economy, based on its computed change in money supply.  The Federal Reserve System buys bonds.         The Federal Reserve System auctions credit.            The Federal Reserve System raises the discount rate.            The Federal Reserve System raises the reserve requirement.

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Required Reserve and Excess Reserve Analysis

A required reserve is an amount of cash that banks must keep with themselves, which is certain percentage of the deposits made by their customers. Required reserve is a percentage of the bank's deposits that the respective bank must have on each overnight. The percentage rate is set and determined by the nation’s central bank. It is important to have such funds accumulated to meet its uncertain obligations, sudden liabilities and withdrawals. Required reserve is also known as reserve ratio. Reserve ratio is an important tool to control the money supply.