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Brief Principles of Macroeconomics...

8th Edition
N. Gregory Mankiw
ISBN: 9781337091985

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BuyFindarrow_forward

Brief Principles of Macroeconomics...

8th Edition
N. Gregory Mankiw
ISBN: 9781337091985
Textbook Problem

What are reserve requirements? What happens to the money supply when the Fed raises reserve requirements?

To determine

The reserve requirements and what happens to the supply of money when

the Fed raises it.

Explanation

The Federal Reserve is the central bank of the US economy, and it is usually known as the Fed. The Fed has the responsibility of keeping the economy controlled from the fluctuations, and it has to control the money supply of the economy through its monetary policies. The controlling of the money supply is one of the primary responsibilities of the Fed.

The banks are the financial institutions that play an important role in the financial market. They are the institutions that accept the excess savings of people as deposits and use the deposits to provide loans to the needy people. The banks have to keep a portion of the deposits with them without providing loans and this is known as the reserve requirements...

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