Determine the change in the discount rate

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Suppose the money supply is $10,000. Banks hold no excess reserves and individuals hold no currency. The reserve requirement is 0.2. The Fed aims to decrease the money supply by $2,000. Assume that for every 1 percentage-point decrease in the discount rate, banks borrow an additional $100. Determine the change in the discount rate required to achieve the planned change in the money supply.

Reference no: EM131172591

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