Homework Answers
(1) Change in money supply = Open market sale / Required reserve ratio = -$500 billion / 0.1 = -$5,000 billion
(2) A fall in money supply lowers aggregate demand, shifting AD curve leftward which decreases both price level and real GDP. In following graph, AD curve shifts to AD1, intersecting SRAS at point B. Note that exact magnitude of shift in your interactive graph may be different from following graph.
(3) Inflation decreases and real GDP decreases.
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of 40> Suppose the Fed sells $500 billion in government securities and the reserve ratio is...
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If the Fed purchased $1.0 million in government securities and the reserve requirement was 1%, which...
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Suppose the Federal Reserve decided to buy $50 billion worth of government securities in the open market a. By how much will M1 change initially if the entire $50 billion is deposited into transactions accounts Note: If M1 decreases be sure to include a negative sign (-) in front of your answer. M1 will initially change by: billion b. How will the lending capacity of the banking system be affected if the reserve requirement is 5 percent? Note: Il lending...
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