.jpg)
FUNDAMENTALS OF BUSINESS ECONOMICS
 |
| Spring 2011 |
|
|
Graduate (S) Business Administration 503 FUNDAMENTALS OF BUSINESS ECONOMICS |
|
|
|
|
The homework should be written on 8 1/2 by 11 paper. When calculations are required, you must show all work. The homework is due on Thursday, March 10.
1. Suppose the reserve requirement in the U.S. is 0.20.
a. Calculate the checking deposit multiplier.
b. Suppose the Fed wanted to increase the money supply by engaging in $600 million in open market operations. What would it do? Using t-accounts for the Fed and three other banks, show how the money supply would be affected in this situation.
c. Using the multiplier calculated in (a), how would the money supply ultimately be affected by this action?
d. Suppose the Fed wanted to ultimately decrease the money supply by $28 billion. What should it do in terms of open market operations, using the multiplier calculated in (a).