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ii. Scenario 2: Assume that the nation is experiencing very high inflation of 13%. The central bank decides to counter the inflation and stabilize prices.
ii. Scenario 2: Assume that the nation is experiencing very high inflation of 13%. The central bank decides to counter the inflation and stabilize prices. a. What open-market policy should the Federal Reserve implement to decrease the money supply? . Based on your answer in part (a), what is the effect of the central bank's action on the excess reserves and the amount of loans that banks can make? . If the Fed is successful, what would be the effect of the central bank's action on the price level (inflation)? Explain. d. If successful, what will most likely be the impact of this policy on the unemployment rate, Gross Domestic Product, and price level (inflation as measured by CPI)? Assume that during the high inflation interest rates were 1% and inflation was 13%. Based on the Fed's policy decision, what would happened to real interest rates? Scenario 3: Cubana Bank of Florida Assets Liabilities Required Reserves: $20,000 Demand Deposits: $200,000 Excess Reserves: $10,000 Loans: $170,000 a. What is the reserve requirement? b. Assume that Gabriela withdraws $10,000 from her checking account at Cubana Bank of Florida. i. By how much will Cubana Bank of Florida's reserves change based on Gabriel's withdrawal? ii. What is the initial effect of the withdrawal on the M1 measure of the money supply? Explain. ili. As a result of the withdrawal, what is the new value of excess reserves on the balance sheet of Cubana Bank of Florida based on the reserve requirement from part (a)? C. Assume that the next day John withdraws from Cubana Bank of Florida an amount that exceeds the bank's. excess reserves. Assuming that no loans are called in how can Cubana Bank of Florida cover its required reserves
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