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Suppose the reserve requirement for the United States is 20%.


Instructions: Round your answers to the nearest whole number.


a. Suppose the Federal Reserve wants to increase the money supply. What should it do to accomplish this goal?

The Fed could make an open market purchase of $20 billion, resulting in a total increase in the money supply of $ ____ billion.


b. Now suppose the Fed wants to decrease the money supply. What should it do to accomplish this goal?

The Fed could make an open market sale of $30 billion, resulting in a total decrease in the money supply of $ ____ billion

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Parrain

If the Fed wants to increase money supply, it should make an open market purchase of $20 billion which would increase money supply by $100 billion.

If the Fed wants to decrease the money supply, then an open market sale of $30 billion would decrease money supply by $150 billion.

What should the Fed do to increase money supply?

They can engage in an open market purchase of government securities which would lead to more dollars entering the market.

The increase in money supply is:

= Amount of purchase / Reserve requirement

= 20 billion / 0.2

= $100 billion

What should the Fed do to decrease money supply?

An open market sale of government securities would take money out of the economy and reduce money supply by:

= Amount of sale / Reserve requirement

= 30 billion / 0.2

= $150 billion

Find out more on Fed policies at https://brainly.com/question/2417605.

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