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What if Banks decide to keep more of their assets as reserves in order to avoid risking a shortage of the required reserve?
It would NOT shrink the money supply, it would just cause the supply of money to grow at a slower pace. So it would decrease the rate of growth of the money supply.
What change in monetary policy could eventually cause overborrowing and overinvestment?
a decrease in the money supply
What effect does an increase in the money supply have on inflation?
An increase in the money supply shifts the money supply curve to the right. If you look on your graph, you will see that an increase in money supply will cause the interest rate to decrease. Here's why: Fed increases money supply-->excess supply of money at the current interest rate -->people buy bonds to get rid of their excess money-->increase in the prices of bonds --> decrease in the interest rate.
What would fed do to interest rates if it wanted to fight inflation?
Use a monetary policy to decrease the money supply.
What does it mean by contract the money supply?
It means to decrease, or lower, the money supply. EXAMPLE: The feds sold treasury bonds and bills in order to contract (decrease) money supply.
What if Banks decide to keep more of their assets as reserves in order to avoid risking a shortage of the required reserve?
It would NOT shrink the money supply, it would just cause the supply of money to grow at a slower pace. So it would decrease the rate of growth of the money supply.
What change in monetary policy could eventually cause overborrowing and overinvestment?
a decrease in the money supply
What effect does an increase in the money supply have on inflation?
An increase in the money supply shifts the money supply curve to the right. If you look on your graph, you will see that an increase in money supply will cause the interest rate to decrease. Here's why: Fed increases money supply-->excess supply of money at the current interest rate -->people buy bonds to get rid of their excess money-->increase in the prices of bonds --> decrease in the interest rate.
Would the money supply increase or decrease if the required reserve ratio was lowered from 20 percent to 10 percent?
That would be decrease
What would fed do to interest rates if it wanted to fight inflation?
Use a monetary policy to decrease the money supply.
What does it mean by contract the money supply?
It means to decrease, or lower, the money supply. EXAMPLE: The feds sold treasury bonds and bills in order to contract (decrease) money supply.
What is the Effectof a decrease in money supply?
Deflation
Would having a money supply twice as large as it currently is make trade twice as easy?
An decrease in the required reserve ratio leads to an increase in the money supply
Would having a money supply twice as large as it is currently makes trade twice as easy?
An decrease in the required reserve ratio leads to an increase in the money supply
How can the Fed decrease the money supply?
The Federal Reserve can decrease the money supply by selling government securities, increasing the reserve requirements for banks, or raising the discount rate.
If the fed increases the money supply what will happen to interest rates?
when money supply is increased, interest rates decrease
What is the solution to control inflation in an economy?
Decreasing the money supply. Monetary policies are concerned with the increase or decrease of the money supply.
