Suppose the Banks Acquire $100 Billion in Additional Reserves,banks Hold

question 9

Essay

Suppose the banks acquire $100 billion in additional reserves,banks hold 10% reserves,and the cash-to-deposit ratio is 15%.
(a)What is the money supply?
(b)Suppose the Fed wants to increase the money supply so it undertakes a $10 billion open market purchase but at the same time people decide to hold twice as much cash as they did before.Will the Fed be successful in its attempt to increase the money supply? Explain.
(c)What lesson for monetary policy can you deduce from your answer to (b)?

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Definitions:

Treatment Defensiveness

Refers to the resistance or opposition demonstrated by individuals when faced with therapeutic interventions or suggestions for behavior change, often observed in psychotherapy or counseling contexts.

CAT Mnemonic

A memory aid used in therapy, which stands for Catch, Assess, and Tackle, helping individuals to manage thoughts and reactions.

DARN Mnemonic

A tool used to remember the four types of client statements indicating readiness for change: Desire, Ability, Reasons, and Need.

Paraphrasing

The act of rewording or restating someone else's ideas or statements in your own words to ensure better understanding.