Question

In: Economics

At the Fed, someone proposes to cut the required reserve ratio from 9.6% to 8%. But...

At the Fed, someone proposes to cut the required reserve ratio from 9.6% to 8%. But the others prefer to buy bonds from the market instead, citing the ability of a fractional reserve banking system to create money. If the policy objective of the Fed is to pump another 214 millions of dollars into the economy, without changing the required reserve ratio, at least how many millions worth of bonds should the Fed plan to buy?

Round your answer to 2 digits after the decimal point. Leave out the millions, that is, if your answer is 1.23 millions, type 1.23, not "1.23 millions", not 1,230,000.

Solutions

Expert Solution

The Correct answer is 20.54 .

EXPLANATION :

GIVEN , 214 Millions

Required Reserve Ration = 9.6%

Therefore .

Hence , without changing the required reserve ratio , 20.54 millions worth of bonds should the Fed plan to buy.

Rahul Sunny answered 2 years ago
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