Unformatted text preview: have fewer reserves and the money supply decreases, Second, the Fed cannot control the amount banks choose to hold as excess reserves. If bankers decide to lend out less of their deposits, the money supply will decrease. Question 4 a) The money multiplier is 1/0.1 = 10, therefore money supply is 100*10 = 1000 billion or 1 trillion. b) If the Fed raises reserve requirement reserves remain unchanged, the money multiplier falls to 5 and the money supply falls to $500 billion. Question 5 a) Buy more b) Decrease c) Decrease d) 8 million (20% x 40million)...
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- Spring '11
- Fractional-reserve banking, 20%, Fed, 100 percent, $500 billion