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    Monetary policy implementation

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    2. Suppose that the Federal Reserve sells $5 million worth of government securities to General Motors. What is the effect on the quantity of bank reserves?

    3. "When the Fed increases the legal reserve requirements, it loosens credit, because the banks have more reserves," Comment and evaluate.

    4. If the Federal Reserve buys $500 million worth of government securities, does this tend to shift the aggregate demand curve tot he right? To the left? Explain.

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    Solution Preview

    The results of an open market sale will likely be the same regardless of whether the buyer is a bank or corporation. GM would take the $5 from its bank holdings in order to make the transaction, in effect lowering bank reserves by $5 ...

    Solution Summary

    Selling and buying of government securities, increasing reserve requirements, and how these actions impact the economy.