Question: The Federal Reserve has decided that interest rates need to
The Federal Reserve has decided that interest rates need to be increased to maintain relatively low inflation in the economy. To accomplish this goal, the Fed has determined that the money supply needs to decrease by $188 billion. It wants to implement this decrease by working through reserves at financial institutions. Suppose that the current reserve requirement is 6 percent and applies to all deposits. By how much must reserves be decreased for the Fed to accomplish its goal? (Assume that financial institutions do not hold excess reserves.)
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