For each of the following monetary policies, calculate the change in money supply. 1. The Fed purchases $500 worth of bonds from banks and the required reserve ratio is 10%.2. The Fed sells $800 worth of bonds to banks and the required reserve ratio is 20%.3. The Fed purchases $3000 worth of bonds from banks and the required reserve ratio is 50%.4. The Fed makes $500 discount loans to banks. The required reserve ratio is 10%.5. The Fed lowers the required reserve ratio from 10% to 2%. The amount of bank reserves is $5 million.

Question

Braxton Mckee

Business

12 July, 17:30

For each of the following monetary policies, calculate the change in money supply. 1. The Fed purchases $500 worth of bonds from banks and the required reserve ratio is 10%.2. The Fed sells $800 worth of bonds to banks and the required reserve ratio is 20%.3. The Fed purchases $3000 worth of bonds from banks and the required reserve ratio is 50%.4. The Fed makes $500 discount loans to banks. The required reserve ratio is 10%.5. The Fed lowers the required reserve ratio from 10% to 2%. The amount of bank reserves is $5 million.

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Kobe Khan · Answer 1

1. change in money supply = 500*10=$5000

2. change in money supply = 800*5 = $4000

3. change in money supply = 3000 * 2 = $6000

4. change in money supply = 500 * 10 = $5000

5. change in money supply = 5,000,000*50 = $250,000,000

Explanation:

Change in money supply = change in reserves * money multiplier

money multiplier = 1 / reserve ratio