Suppose the reserve requirement for the United States is 20%.

Instructions: Round your answers to the nearest whole number.

a. Suppose the Federal Reserve wants to increase the money supply. What should it do to accomplish this goal?
The Fed could make an open market purchase of $20 billion, resulting in a total increase in the money supply of $ billion.

b. Now suppose the Fed wants to decrease the money supply. What should it do to accomplish this goal?
The Fed could make an open market sale of $30 billion, resulting in a total decrease in the money supply of $ billion.

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topeadeniran2 topeadeniran2 · Answer 1 · 2022-04-26T14:06:03+02:00

When the Federal Reserve wants to increase the money supply, it will purchase bonds from banks.

It should be noted that the Federal Reserve controls the monetary aspect in an economy.

In this case, when the Federal Reserve wants to increase the money supply, it will purchase bonds from banks.

Also, when the Fed wants to decrease the money supply, the thing that should be done will be to sell bonds.

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