Conditions to Federal bank's money supply level with the given reserve requirement.
1. The current money supply is $4,000. For each of the following state the money multiplier, the monetary base, and explain by how much the Fed must change the reserve requirement to achieve the desired change in the money supply. Suppose banks hold no excess reserves also individuals hold no money.
a.Reserve requirement is currently 0.2. The Fed wants to decrease the money supply by $800
b.Reserve requirement is currently 0.5. The Fed wants to increase the money supply by $1000.
c.Reserve requirement is currently 0.25. The Fed wants to increase the money supply by $1000.
2. The current money supply is $10,000. For each of the following, state the money multiplier, the monetary base, and what open market operation the Fed would have to take to achieve the desired change in the money supply. Assume banks hold no excess reserves and individuals hold no money.
a.Reserve requirement is currently 0.1. The Fed wants to decrease the money supply by $800
b.Reserve requirement is currently 0.5. The Fed wants to increase the money supply by $1000.
c.Reserve requirement is currently 0.4. The Fed wants to increase the money supply by $1000.