(Solved): 8. The reserve requirement, open market operations, and the moneysupply Consider a system of banki ...

8. The reserve requirement, open market operations, and the moneysupply Consider a system of banking in which the Federal Reserve uses required reserves to control the money supply (as was the case in the United States before 2008). Assume that banks do not hold excess reserves and that households do not hold currency, so the only money exists in the form of demand deposits. To further simplify, assume the banking system has total reserves of \( \$ 100 \). Determine the money multiplier as well as the money supply for each reserve requirement listed in the following table. A lower reserve requirement is associated with a \( \quad \) money supply. Suppose the Federal Reserve wants to increase the money supply by \( \$ 100 \). Maintain the assumption 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 of U.S. government bonds. Now, suppose that, rather than immediately 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 \( 20 \% \). This increase in the reserve ratio causes the money multiplier to to . Under these conditions, the Fed would need to worth of U.S. government bonds in order to increase the money supply by \( \$ 100 \).