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. Buy government securities. Increase the interest paid on bank reserves. Increase the reserve ratio. Sell government securities.

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. Buy government securities. Increase the interest paid on bank reserves. Increase the reserve ratio. Sell government securities.

Macroeconomics

13th Edition

ISBN:9781337617390

Author:Roger A. Arnold

Publisher:Roger A. Arnold

Chapter13: The Federal Reserve System

Section: Chapter Questions

Problem 10WNG

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Question

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.
Buy government securities.
O Increase the interest paid on bank reserves.
Increase the reserve ratio.
Sell government securities.
Calculate the change in reserves necessary to achieve the $400 billion increase.
$
billion

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