Question

Suppose the Federal Reserve sets the reserve requirement at 10 percent, banks hold no excess reserves, and no additional currency is held.

Instructions: Enter your answers as a whole number. If you are entering any negative numbers be sure to include a negative sign (-) in front of those numbers.

a. What is the money multiplier?

b. By how much will the total potential money supply change if the Federal Reserve changes the amount of reserves by -$50 million? $ 

c. Suppose the Federal Reserve wants to decrease the total money supply by $600 million. By how much should the Federal Reserve change reserves to achieve this goal?

Answer 1