Question

If the FED increased the Reserve Requirement then:

Group of answer choices

M1 would increase

The money multiplier would decrease

Congress would have to approve of this increase

the money multiplier would increase

the money multiplier would stay the same

Answer 1

-When the FED raises the reserve requirement , its executing contractionary policy. That reduces liquidity and slowd economic activity.

-The higher the reserve requirement, the less profit a bank makes with its money. Changing the reserve requirement is expensive for banks .

-Lowering the reserve requirement increases excess reserves in the system, thereby increasing loan activity. The Federal Reserve can decrease the money supply by increasing the reserve requirement .a Increasing the reserve requirement decreases excess reserves in the system, thereby decreasing loan activity.

1-MI is a money supply

How is money supply growth affected by an increase in the reserve requirement ratio?

-An increase in the reserve requirement ratio reduces the proportion of deposited funds that a financial institution can lend out .

2 Consequently, it reduces the rate by which money can multiply.

-If banks are lending more than their reserve requirement allows then their multiplier will be higher creating more money supply. If banks are lending less, then their multiplier will be lower and the money supply will also be lower.

-Why is the effect if Federal Reserve actions on bank reserves less exact than the effect on the monetary base?

-The FED  can increase the monetary base by purchasing government bonds and by extending discount.

3-The federal Reserve system is not owned by

anyone .

-The federal reserve was created in 1913 by the federal reserve act to serve as the nation's central bank. The federal reserve derives its authority from the Congress, which created the system in 1913 with the enactment of the federal reserve.

-The monetary decisions of the federal reserve do not have to be ratified by then president ( or anyone else in thr Executive branch). Thr fed receives ni funding from Congress and the members of the board of governors who are appointed serve 14,- year terms .

4-The FED influence the money supply by modifying reserve requirements , which generally refers to the amount of funds banks accounts . By lowering the reserve requirements, banks are able to loan more money whuch increase the overall supply of money in the economy.

-The increase in the money supply is mirrored by an equal increase in nominal output, or Gross Domestic product. The increase in the money supply will lead to an increase in consumer spending . Increased money supply causes reduction in interest rates and further spending and therefore an increase ratee and further causes reduction in interest rates and further spending and therefore an increase in AD.

-When the federal reserve adjusts the supply of money in sm economy the nominal interest rate of change as a result

-The money supply is the total amount of money, - cash , coins and balances in bank accounts

Example- U.S currency and balances helpd in checking accounts and savings accounts are included in many measures of thr money supply

First,: Money Multiplier = 1 reserve raiion.finally to calculate the maximum changenin the money supply use the formula change in money supply.

Use formula change in money supply = change in reserves * Money Multiplier.