The given requirements by Federal Reserve are-
A: The money multiplier: 15.
B: The total money supply change if the Federal Reserve changes the amount of reserves by -$50 million: $750 million.
C: If the Federal Reserve wants to decrease the total money supply to $600 million. The Federal Reserve change reserves to achieve this goal by; $60 million.
<h3>What is Reserve Requirements?</h3>
In order to match consumer deposits, banks are required to hold a certain quantity of cash in their safes or at the nearby Federal Reserve bank.
Some characteristics of reserve requirements are-
- Based on a portion of the cash that customers have on hand, banks lend them money.
- In return for this power, the government imposes one obligation on them: maintain a minimum balance of deposits to cover potential withdrawals.
- The reserve requirement is the amount that banks must hold in reserve and aren't permitted to lend above.
- One of the three basic instruments of monetary policy, together with open-market operations as well as the discount rate, is the reserve requirement, which is determined by the board of governors of the Federal Reserve.
- The central bank uses reserve requirements as a tool to alter the amount of currency in the economy and affect interest rates.
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The complete question is-
Suppose the Federal Reserve sets the reserve requirement at 15%, banks hold no excess reserves, and no additional currency is held.
A: What is the money multiplier?
B: By how much will the total money supply change if the Federal Reserve changes the amount of reserves by -50 million?
C: Suppose the Federal Reserve wants to decrease the total money supply to $600 million. By how much should the Federal Reserve change reserves to achieve this goal?