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Describe how and open market purchase by the Fed will affect the money supply of $7 million will affect the money supply

A. Assuming a required reserve rate of 5%, what is the maximum amount by which the money supply can change due to open market operations?

B. How will your answer to (a) above change if banks decide to hold reserves over and above the required amount?

C. Suppose a large corporation (not the Fed) makes the open market purchase of $7 million in U.S. Treasury securities/bonds as an investment decision. Explain how the money supply will be affected in this case (does it increase, decrease, or stay the same?).

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Business Economics, Economics

Category:- Business Economics
Reference No.:- M92199210

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