Question
In: Economics
If the Federal Reserve wants to increase the money supply in the economy using Reserve Requirement...
If the Federal Reserve wants to increase the money supply in the economy using Reserve Requirement (RR), what does it do?
Solutions
Expert Solution
If Federal Reserves want to pump into more money supply in the US economy, it will review its monetary policy. Monetary policy is an important instrument of the Central Bank of any country to regulate the cash inflow in the economy. Federal Reserves will reduce the cash reserve ratio requirements for all banks in US so that banks have more funds to lend borrowers for various purposes. This will increase cash inflow in the economy and boost economic activities but lowering cash reserve ratio at the same time also increases inflation in the economy.
The cash reserve ratio is the proportion of fund which every bank in US had to maintain with Federal Reserves. Increasing cash reserve ratio results less cash availability at banks for loans, which is used to contain growing inflation in the economy. Conversely, if Federal Reserves lower the cash reserve ratio, it will allow banks to have more funds for business and personal loans.
Rahul Sunny answered 2 years agoRelated Solutions
Suppose the Federal Reserve wants to increase the money supply by increasing the lending potential of...
Suppose the Federal Reserve wants to increase the money supply by increasing the lending potential of commercial banks. Assume the current reserve requirement for commercial banks is 20 percent. Now suppose the Fed wants the lending potential to increase by $180 billion, and it plans to use open-market operations to accomplish this goal.
The Federal Reserve wants to increase the money supply by increasing the lending potential of commercial...
The Federal Reserve wants to increase the money supply by increasing the lending potential of commercial banks by $300 billion. It plans to use open-market operations to accomplish this goal. The current reserve requirement for commercial banks is 25 percent. Instructions: Enter your answer as a whole number. a. Will the Fed want to buy or sell government securities if sales or purchases of government securities are the only instrument used in the open-market operations?The Fed will want to _(Sell/Buy). a...
Suppose the Federal Reserve wants to increase the money supply by increasing the lending potential of...
Suppose the Federal Reserve wants to increase the money supply by increasing the lending potential of commercial banks. Assume the current reserve requirement for commercial banks is 8 percent. Now suppose the Fed wants the lending potential to increase by $250 billion, and it plans to use open-market operations to accomplish this goal.
Instructions: Enter your answer as a whole number.
a. If sales or purchases of government securities are the only instrument used in the open-market operations, the Fed...
What happens to the money supply, interest rates, and the economy if the Federal Reserve is...
What happens to the money supply, interest rates, and
the economy if the Federal Reserve is a net seller of government
bonds? What happens to the money supply, interest rates, and the
economy if the Federal Reserve is a net buyer of government
bonds.
An increase in the reserve requirement ; a. increases the money multiplier and reduces the money...
An increase in the reserve requirement ;
a. increases the money multiplier and reduces the money
supply.
b. increases the money multiplier and increases the
money supply.
c. reduces the money multiplier and reduces the money
supply.
d. none of these.
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Which of the following policies by the Federal Reserve is likely to
decrease the money supply?
a. Reducing reserve requirements.
b. Decreasing the discount rate.
c. Selling government bonds.
d. None of these.
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Suppose that a five-year...
Explain how an increase in the reserve requirement by the Federal Reserve can lead to a...
Explain how an increase in the reserve requirement by the
Federal Reserve can lead to a decrease in real GDP.
If the Federal Reserve decided to increase the money supply by engaging in open market bond...
If the Federal Reserve decided to increase the money supply by
engaging in open market bond purchases from the non-bank public,
explain what will happen to the equilibrium interest rate in the
U.S. (in your description mention or show with a graph the change
in the supply curve for loanable funds and the change in its
intersection with the demand curve for loanable funds.
If the Federal Reserve decided to increase the money supply by engaging in open market bond...
If the Federal Reserve decided to increase the money
supply by engaging in open market bond purchases from the non-bank
public, explain what will happen to the equilibrium interest rate
in the U.S. (in your description mention or show with a graph the
change in the supply curve for loanable funds and the change in its
intersection with the demand curve for loanable funds.
An increase in the reserve requirement A) increases the money supply by decreasing excess reserves and decreasing the monetary multiplier
An increase in the reserve requirement A) increases the money supply by decreasing excess reserves and decreasing the monetary multiplier B) decreases the money supply by increasing excess reserves and decreasing the monetary multiplier c) decreases the money supply by decreasing excess reserves and decreasing the monetary multiplier D) increases the money supply by increasing excess reserves and increasing the monetary multiplierWhen the federal government cuts taxes and increases purchases to stimulate the economy during a period of recession, such actions are designed to...
1. When the Federal Reserve decreases the required reserve ratio, A.The money supply will increase. B.The...
1. When the Federal Reserve decreases the required reserve
ratio,
A.The money supply will increase.
B.The money supply will decrease.
C.There is no effect on the money supply.
D.Not enough information is given.
2. The United States is divided into ___ Federal Reserve
Districts. The Federal Reserve Bank's Board of Governors consists
of ___ members appointed by the president of the U.S. to 14-year,
non-renewable terms. One of the board members is appointed to a ___
year, renewable term as...
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