If the Fed wants to decrease the money supply using open-market operations, it should ______(buy/sell) $_________ billion worth of U.S. government bonds. If the Fed wants to decrease the money supply by adjusting the required reserve ratio, it should ______(increase/decrease) the required reserve ratio. THis is one question . please answer with an explanation.
If the Fed wants to decrease the money supply using open-market operations, it should ______(buy/sell) $_________ billion worth of U.S. government bonds. If the Fed wants to decrease the money supply by adjusting the required reserve ratio, it should ______(increase/decrease) the required reserve ratio. THis is one question . please answer with an explanation.
Chapter16: Monetary Policy
Section: Chapter Questions
Problem 7SQ
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The Federal Reserve and the money supply
Suppose the money supply (as measured by checkable deposits) is currently $300 billion. The required reserve ratio is 25%. Banks hold $75 billion in reserves, so there are no excess reserves .
The Federal Reserve (“the Fed”) wants to decrease the money supply by $32 billion, to $268 billion. It could do this through open-market operations or by changing the required reserve ratio. Assume for this question that you can use the simple money multiplier.
If the Fed wants to decrease the money supply using open-market operations, it should ______(buy/sell) $_________
billion worth of U.S. government bonds.
If the Fed wants to decrease the money supply by adjusting the required reserve ratio, it should ______(increase/decrease) the required reserve ratio.
THis is one question . please answer with an explanation.
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