What is the effect on the economys reserves and money supply

Reference no: EM13245390

Suppose that the reserves requirements for checking deposit 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 economy's reserves and money supply?

B.Now suppose the fed lowers the reserves requirements to 5 percent, but banks choose to hold another 5 persent of deposits as excess reserves.why might banks do so? what is the overall change in the money multiplier and the memory supply as a result of these actions?

Reference no: EM13245390

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