1. Suppose the Fed decides to stimulate the economy. Assume there is no cash lea

Question

1.Suppose the Fed decides to stimulate the economy. Assume there is no cash leakage and required reserve ratio is 25% now, and banks have no excess reserves.

a. Show how the Fed would increase M1 by 1 million dollars by changing the reserve ratio?

b.Show how the Fed would increase M1 by 1 million dollars through open market operation?

Suppose the Fed decides to stimulate the economy. Assume there is no cash leakage and required reserve ratio is 25% now, and banks have no excess reserves. Show how the Fed would increase M1 by 1 million dollars by changing the reserve ratio? Show how the Fed would increase M1 by 1 million dollars through open market operation?

Explanation / Answer

See my answer to your other post of this question.

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