(Solved): Consider a banking system where the Federal Reserve uses required reserves to control the money sup ...

Consider a banking system where the Federal Reserve uses required reserves to control the money supply. (This was the case in the U.S. prior to 2008.) Assume that banks do not hold excess reserves and that households do not hold currency, so the only form of money is demand deposits. To simplify the analysis, suppose the banking system has total reserves of \( \$ 300 \). Determine the money multiplier and the money supply for each reserve requirement listed in the following table. A higher reserve requirement is associated with a money supply. Suppose the federal Reserve wants to increase the money supply by \( \$ 200 \). Again, you can assume that banks do not hold excess reserves and that households do not hold currency. If the reserve requirement is \( 10 \% \), the Fed will use open-market operations to U.S. povernment bonds. Now, suppose that, rather than immedately lending out all excess reserves, banks begin holding some excess reserves due to uncertain economic conditions. Specifically, banks increase the percentage of deposits held as reserves from 10\% to 25\%. This increase in the reserve ratio causes the money multiolier to \( \approx \) to . Under these conditions, the fed would need to to increase the money supply by \( \$ 200 \). worth of U.S. povernment bonds in order Which of the following statements belp to explain why, in the reat world, the Fed cannot precisely control the money supply? check all that apoly. The fed cannot control the amount of money that households choose to hold as currency. The Fed cannot prevent banks from lending out required reserves. The fed cannot control whether and to what extent banks hold excess reserves.