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What quantity of bonds would the fed buy or sell

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Reference no: EM132476857

1) Assume that the required reserve ratio, R = 20%. Also assume that banks do not hold excess reserves and there is no cash held by the public. The Federal Reserve decides that it wants to reduce the money supply by $40 million [Note: money supply is measured by M1 = Total deposits + Cash].

a. If the Fed uses open market operations, would it buy or sell bonds?

b. What quantity of bonds would the Fed buy or sell to accomplish the goal? Explain.

Reference no: EM132476857

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