ECON 2010 Lesson 10

ECON 2010 Lesson 10 - commercial banks. Since an increase...

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Ashlie Michelle Ferguson ECON 2010 Lesson 10 Enrollment # 642885 1. There are two ways that the Fed can reduce the US money supply: i. Open Market Operations—To reduce money supply, the Fed will sell government bonds to the public. When the public pays for the bonds, the Fed retires this money from circulation, lowering reserves and money supply. ii. Changing Reserve Requirements—To reduce money supply, the Fed can increase the minimum value of the reserve-deposit ratio for
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Unformatted text preview: commercial banks. Since an increase in the reserve-deposit ratio lowers deposits, and ultimately the money supply 2. a. Deposits = 100/0.25 = 400 Money Supply = 200+400 = 600 b. 500 = x + (x/0.25) 125 = 0.25x + x 125 = x(0.25 + 1) 125 = 1.25x x = 100 c. 1250 = 250 + (100/x) 1000 = 100/x 1000x = 100 x = 0.10 = 10% 3. C 4. C 5. B 6. E 7. D 8. A 9. B 10. B 11. D 12. D 13. E 14. C 15. B 16. C 17. C...
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