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Macroeconomics: Private and Public...

16th Edition
James D. Gwartney + 3 others
Publisher: Cengage Learning
ISBN: 9781305506756

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Section
BuyFindarrow_forward

Macroeconomics: Private and Public...

16th Edition
James D. Gwartney + 3 others
Publisher: Cengage Learning
ISBN: 9781305506756
Chapter 13, Problem 12CQ
Textbook Problem
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If the Fed wants to expand the money supply, why is it more likely to do so by purchasing bonds and other financial assets rather than by lowering reserve requirements?

To determine

Explain the impact of purchasing bonds and other financial assets rather than by lowering reserve requirements.

Explanation of Solution

The Federal Reserve controls the money supply using four methods, which are buying and selling financial assets and government securities in the open market, changing the interest rate, changing reserve requirements, and extending and reducing the volume of loans to banks and other financial institutions. The primary tool of the Fed to control the money supply is buying and selling financial assets and government securities in the open market...

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