10. Suppose that the reserve requirement for checking deposits is 10 percent and that banks do not...

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10. Suppose that the reserve requirement for checking deposits is 10 percent and that banks do not hold any excess reserves.

a. If the Fed sells $1 million of government bonds, what is the effect on the economy’s reserves and money supply?

b. Now suppose the Fed lowers the reserve requirement to 5 percent, but banks choose to hold another 5 percent of deposits as excess reserves.

Why might banks do so? What is the overall change in the money multiplier and the money supply as a result of these actions?

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Principles Of Macroeconomics

ISBN: 9780324171891

3rd Edition

Authors: N. Gregory Mankiw

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Question Posted: Sep 27, 2024 07:01 AM

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10. Suppose that the reserve requirement for checking deposits is 10 percent and that banks do not...

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Principles Of Macroeconomics

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