8. The reserve requirement, open market operations, and the moneysupply Consider a banking system where the Federal Reserve uses required reserves to control the money supply. (This was the case in the U.S. prior to 2008.) Assume that bariks do not hold excess reserves and that households do not hold currency, so the only form of money is demand deposits. To simplify the analysis, suppose the bankang system has total reserves of $400. Determine the money multipher and the money supply for each reserve requirement listed in the following table. A higher reserve requirement is associated with a money supbly. Suppose the Federal Reserve wants to increase the money supply by 5200 . Mgain, you can assume that banks do not hold excess reserves and that honseholds to not hold currency. If the reserve requirement is 10%, the fed will use open-market oparations to worth of U.S. government bonds. Now, suppose that, rather than immediately lending out all excess reserves, banks begin holding some excess reserves due to uncertain economic: conditions. Specifically, banks increase the percentage of deposits held as reserves from 10% to 25%. This increase in the reserve ratio causes the money multiplier to to Under these conditions, the Fed would need to worth of U.S. government bonds in order to incresse the money supply by $200 Suppose the Federal feserve wants to increase the money supply by 5200 . Again, you can assume that banks do not hold excess reserves and that households do not hold currency. If the reserve requirement is 10%, the Fed will use open-market operations to worth of U.5. govemment bonds. Now, suppose that, rather than immediately lending out alf excess reserves, bariks began holding some excess reserves due to uncertain econamic conditions. Specifically, banks increase the percentage of deposits held as reserves from 1095 to 25%. This increase in the reserve ratio causes the money multiplier to to . Under these conditions, the Fed would need to worth of U.5. govemment bonds in order to increase the money supply by $200. Which of the following fotatements help to explain why, in the real wotld, the fed cannot precisely control the minoney supply? check ail that apply. The fed cannot control the amount of maney that households choose to hold as currency The fed cannot prevent banks from lending out required reserves. The Fed cannot control whether and to what extent banks hold excess ieserves