Chapter 29: P&A-12 (page: 661) Assume that the reserve requirement is 20%. Also assume that banks do not hold excess reserves and there is no cash hel
{"Image DocumentName": "Chapter 29: P&A-12 (page: 661)", "Image ImageDescription": "Assume that the reserve requirement is 20%. Also assume that banks do not hold excess reserves and there is no cash held by public. The Federal Reserve decides that it wants to expand the money supply by  40 million dollars. a. If the Fed is using open-market operations, will it buy or sell bonds? b. What quantity of bonds does the Fed need to buy or sell to accomplish the goal? Explain your reasoning. ANSWER: a. To expand the money supply, the Fed should buy bonds. b. With a reserve requirement of 20%, the money multiplier is 1/0.20 = 5. Therefore to expand the money supply by  40 million, the Fed should buy  40 million/5 =  8 million worth of bonds.", "Image XResolution": "37", "Image YResolution": "37", "Image ResolutionUnit": "Pixels/Centimeter", "Image Software": "SlidePlayer", "Image YCbCrPositioning": "Centered"}