- If the required reserves ratio is 50 % and the Federal Reserve sells $100 million...

- If the required reserves ratio is 50 % and the Federal Reserve sells $100 million of bonds, what will happen to money supply?

a.If the reserve requirements ratio is 10% and the Federal Reserve buys $100 million bonds, what will happen to the money supply?

b.If the Fed decreases the reserve requirements ratio from 50% to 20% what will happen to the money multiplier?

Solutions

Expert Solution

- If the required reserves ratio is 50 % and the Federal Reserve sells $100 million of bonds, what will happen to money supply?

Ans. If Federal Reserves sells $100m bonds then money supply will decrease in the market. (Note: Required reserve ratio & open market operations (buying/selling bonds) are two independent measures.)

a.If the reserve requirements ratio is 10% and the Federal Reserve buys $100 million bonds, what will happen to the money supply?

Ans. If Federal Reserves buys $100m bonds then money supply will increase in the market. (Note: Required reserve ratio & open market operations (buying/selling bonds) are two independent measures.)

b.If the Fed decreases the reserve requirements ratio from 50% to 20% what will happen to the money multiplier?

Ans. If the Fed decreases the reserve requirement from 50% to 20%, then money supply would increase as now the banks would have to keep 30% less money as a reserve & can float that money in the market.

jeff jeffy answered 1 year ago

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