Principles of Economics (MindTap Course List)
Principles of Economics (MindTap Course List)
8th Edition
ISBN: 9781305585126
Author: N. Gregory Mankiw
Publisher: Cengage Learning
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Chapter 29, Problem 11PA

Subpart (a):

To determine

The action by the Fed to increase the money supply in the economy.

Subpart (b):

To determine

The action by the Fed to increase the money supply in the economy.

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When the Fed wishes to decrease the money supply, it can   a. increase the required reserve ratio.   b. decrease the required reserve ratio.   c. ask people to buy more bonds.   d. turn additional funds over to the Treasury.
If the Required Reserve Ratio is 0.10, what does the Fed need to do to contract the supply of money by $40 billion? Select one: a. Buy $2 billion worth of government bonds from banks b. Buy $4 billion worth of government bonds from banks c. Buy $8 billion worth of government bonds from banks d. Sell $4 billion worth of government bonds to banks e. Sell $2 billion worth of government bonds to banks f. Sell $8 billion worth of government bonds to banks
The Bank of Canada sets the reserve requirement, which banks must meet through deposits at the Bank of Canada and cash held at the bank. What do these requirements achieve? Check all that apply. They help to facilitate transfers of funds between banks when a customer from one bank writes a cheque to a customer of another. They help to control the money supply. They help to prevent bank runs by reassuring the public that banks will not make too many loans and run out of cash. They mean that a bank must have one dollar of deposits for every dollar it lends.
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