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15 April, 23:32

Suppose the money supply (as measured by checkable deposits) is currently $700 billion. The required reserve ratio is 25%. Banks hold $175 billion in reserves, so there are no excess reserves.

The Fed wants to increase money supply by $44 billion, to $744 billion. Assume that you can use the simple money multiplier

a) If the Fed wants to increase the money supply through open market operations, it should_ $_ billion worth of U. S. government bonds.

b) If the Fed wants to increase the money supply by adjusting the required reserve ratio, it should_required reserve ratio.

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  1. 16 April, 01:17
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    a) Buy bonds worth 44$ billion

    b) Decrease

    Explanation:

    a) If the Fed wants to increase the money supply through open market operations, it should Buy bonds worth 44$ billion of U. S. government bonds.

    b) If the Fed wants to increase the money supply by adjusting the required reserve ratio, it should Decrease required reserve ratio.
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