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Textbooks / Business / Principles of Economics 6 / Chapter 29 / Problem Problems and Applications 29.9

Suppose that the reserve requirement for checking deposits is 10 percent and that banks

Principles of Economics | 6th Edition | ISBN: 9780538453059 | Authors: N. Gregory Mankiw ISBN: 9780538453059 472

Solution for problem Problems and Applications 29.9 Chapter 29

Principles of Economics | 6th Edition

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Principles of Economics | 6th Edition | ISBN: 9780538453059 | Authors: N. Gregory Mankiw

Principles of Economics | 6th Edition

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Problem Problems and Applications 29.9

Suppose that the reserve requirement for checking deposits is 10 percent and that banks do not hold any excess reserves. a. If the Fed sells $1 million of government bonds, what is the effect on the economys reserves and money supply? b. Now suppose the Fed lowers the reserverequirement to 5 percent, but banks choose tohold another 5 percent of deposits as excessreserves. Why might banks do so? What isthe overall change in the money multiplierand the money supply as a result of theseactions?

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Textbook: Principles of Economics
Edition: 6
Author: N. Gregory Mankiw
ISBN: 9780538453059

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