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The banking system currently has $50 billion of reserves. People hold only deposits and no currency, and the reserve requirement is 10%. If the Fed raises the reserve requirement to 12.5% and at the same time sells $10 billion of bonds, how much does the money supply change?

2007-03-21 04:37:54 · 1 answers · asked by j0hnrcash 2 in Social Science Economics

1 answers

At 10% reserves your money supply is $500 billion

At 12.5% reserves your money supply is $400 billion or changed $100 billion

If bonds are sold, money is taken out of the system of $10 billion and take account of reserve - changed 80 billion

So the new money supply changed $180 billion

2007-03-21 07:41:54 · answer #1 · answered by JuanB 7 · 0 0

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