Question

Suppose the Fed sells $ 400 billion in government securities and the reserve ratio is 0.5 . Calculate the resulting change in the money supply. Be certain to include a negative sign. change in the money supply:

Answer 1

The change in money supply is $-800 billion.

What is the change in money supply?

The Fed is the Central Bank of the United States. One of the duties of the Fed is to conduct monetary policies. Monetary polices are used to affect the level of money supply in the economy.

One of the monetary policy tools is open market operation. When the Fed sells government securities, it is known as an open market sells. Open market sells reduces money supply in the economy.

Reserve ratio is the percentage of deposits that is required of commercial banks to keep as reserves. The reserve ratio is also used to control the amount of money supply in the economy.

Change in money supply = value of government securities sold / reserve ratio

$400 billion / 0.5 = 800 billion

To learn more about reserve ratio, please check: https://brainly.com/question/6831267

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