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China's central bank raised its reserve ratio requirement by one percentage point to 17.5 percent by June 25. China's action was an attempt to decrease

China's central bank raised its reserve ratio requirement by one percentage point to 17.5 percent by June 25. China's action was an attempt to decrease lending growth.

  • People's Daily Online, June 11, 2008

a. Compare the required reserve ratio in China and in the United States.

b. Explain how raising the required reserve ratio changes the interest rate in the short run and draw a graph to illustrate the change.

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