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mestny [16]
3 years ago
6

Explain two ways by which the Federal Reserve System can increase the monetary base. Why is the effect of Federal Reserve action

s on bank reserves less exact than the effect on the monetary base?
Social Studies
1 answer:
damaskus [11]3 years ago
4 0

Answer:

The Fed can increase the monetary base using one of these two tools:

  1. Open-market operations: if the Fed wants to increase the money supply, it can buy government bonds. The money the Fed prints to buy these bonds increase the monetary base.
  2. Reserve requirements: the Fed can increase the reserve-deposit ratio for commercial banks. In other words, commercial banks will have to keep more reserves as a percentage of the deposits they hold, and this increases the monetary base.

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