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(Solved): In a limited reserve monetary system, the Fed wants to increase the money supply (which is currently ...



In a limited reserve monetary system, the Fed wants to increase the money supply (which is currently $5,000) by $250. The money multiplier is 2, and people hold no cash. For each 1 percentage point the discount rate falls, banks borrow an additional $10.

Explain how the Fed can achieve its goals using the following tools:

a. Change the reserve requirement.

b. Change the discount rate.

c. Use open market operations.



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