Suppose the Federal Reserve (Fed) decides the current money supply of $2.1 trillion is too low, and that an increase of $400 billion is necessary. What tool can the Fed use to accomplish this increase? Assume the current reserve ratio is 0.1 OIncrease the reserve ratio. O Buy government securities. Increase the interest paid on bank reserves. Sell government securities. Calculate the change in reserves necessary to achieve the $400 billion increase billion

Macroeconomics: Private and Public Choice (MindTap Course List)
16th Edition
ISBN:9781305506756
Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Chapter13: Money And The Banking System
Section: Chapter Questions
Problem 16CQ
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Suppose the Federal Reserve (Fed) decides the current money supply of $2.1 trillion is too low, and that an increase of $400
billion is necessary.
What tool can the Fed use to accomplish this increase? Assume the current reserve ratio is 0.1
OIncrease the reserve ratio.
O Buy government securities.
Increase the interest paid on bank reserves.
Sell government securities.
Calculate the change in reserves necessary to achieve the $400 billion increase
billion
Transcribed Image Text:Suppose the Federal Reserve (Fed) decides the current money supply of $2.1 trillion is too low, and that an increase of $400 billion is necessary. What tool can the Fed use to accomplish this increase? Assume the current reserve ratio is 0.1 OIncrease the reserve ratio. O Buy government securities. Increase the interest paid on bank reserves. Sell government securities. Calculate the change in reserves necessary to achieve the $400 billion increase billion
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