Congratulations! You have been approved adviser to the Federal Reserve Bank. a. The Federal Open Market Committee
Question:
a. The Federal Open Market Committee decides that it must increase the money supply by 60. Committee members tell you the reserve ratio is 0.1 and the cash-to-deposit ratio is 0.3. They ask you what directive they should give to the open market desk. You tell them, being as specific as possible, using the money multiplier.
b. They ask you for two other ways they could have achieved the same end. You tell them.
c. Based on the AS/AD model, tell them what you think the effect on the price level of your policy will be.
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Step by Step Answer:
a Since the money multiplier is 325 we would issue a directive for the Fed ope...View the full answer
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