Principles of Economics, 7th Edition

Published by South-Western College
ISBN 10: 128516587X
ISBN 13: 978-1-28516-587-5

Chapter 29 - Part X - The Monetary System - Problems and Applications - Page 631: 10

Answer

a) Since the Fed wants to increase the money supply, the Fed should buy bonds.

Work Step by Step

b) The Fed wants to increase the money supply by 40 million dollars. The money multiplier is 5. Thus, the Fed should buy 8 million dollars of bonds. $1/.2 =5$ $40/5=8$
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