The Fed wants to increase the money supply (which is currently $5,000) by $350. The money multiplier is 4, and people hold no cash. For each 1 percentage point the discount rate falls, banks borrow an additional $10. Explain how the Fed can achieve its goals using the following tools:
a. Change the reserve requirement.
Instructions: Enter your response rounded to the nearest whole number.
The Fed should (Click to select)lower raise the reserve requirement to percent.
b. Change the discount rate.
Instructions: Enter your response rounded to two decimal places.
The Fed should (Click to select)lower raise the rate by percentage points.
c. Use open market operations.
Instructions: Enter your response rounded to two decimal places.
The Fed should (Click to select)sell-buy $ worth of bonds.
The Fed wants to increase the money supply (which is currently $5,000) by $350. The money multiplier is 4, and people hold no cash. For each 1 percentage point the discount rate falls, banks borrow an additional $10. Explain how the Fed can achieve its goals using the following tools:
a. Change the reserve requirement.
Instructions: Enter your response rounded to the nearest whole number.
The Fed should (Click to select)lower raise the reserve requirement to percent.
b. Change the discount rate.
Instructions: Enter your response rounded to two decimal places.
The Fed should (Click to select)lower raise the rate by percentage points.
c. Use open market operations.
Instructions: Enter your response rounded to two decimal places.
The Fed should (Click to select)sell-buy $ worth of bonds.
