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Fed and Money Supply

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Suppose the money supply is currently $500 billion and the Fed wishes to increase it by $100 billion.

a. Given a required reserve ratio of 0.25, what should it do?

b. If it decided to change the money supply by changing the required reserve ratio, what change should it make?

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Solution Summary

This solution provides answers to 2 questions on what Fed needs to do to increase money supply given a required reserve ratio, and the changes that are to be made in required reserve ratio in order to increase money supply

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Suppose the money supply is currently $500 billion and the Fed
wishes to increase it by $100 billion.

a. Given a required reserve ratio of 0.25, what should it do?

b. If it decided to change the money supply by changing the required reserve ratio, what change should it make

a. Given a required reserve ratio of 0.25, what should it do?
Reserve raio= 0.25
Money ...

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