1. Suppose that the reserve ratio is 0.12 and the currency ratio is 0.3, and there are no excess reserves. a. compute the level of money supply if total reserves are $40 billion? b. Assume that total reserves are unchanged at $40 billion. By how much does the money supply change if the Fed increases the reserve ratio to 0.2? c. By how much does the money supply change if the Fed buys $1 billion of government bonds in the open market? (Keep the reserve ratio at 0.12.)

1. Suppose that the reserve ratio is 0.12 and the currency ratio is 0.3, and there are no excess reserves. a. compute the level of money supply if total reserves are $40 billion? b. Assume that total reserves are unchanged at $40 billion. By how much does the money supply change if the Fed increases the reserve ratio to 0.2? c. By how much does the money supply change if the Fed buys $1 billion of government bonds in the open market? (Keep the reserve ratio at 0.12.)

International Financial Management

14th Edition

ISBN:9780357130698

Author:Madura

Publisher:Madura

ChapterP3: Part 3: Exchange Rate Risk Management

Section: Chapter Questions

Problem 2Q

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