The Bank Tools and Money Supply

Pg. 301-306

Answer on a separate sheet of paper.

1. Why would increasing the reserve requirement lower the money supply?

2. What are securities? And, how do they benefit the public and banks?

3. Why do open market purchases increase the money supply?

4. Why would a lower discount rate increase the money supply?

5. The Fed conducts an open market sale. Does the money for which it sells the government securities stay in the economy? Explain.

6. If the Fed wants the money supply to rise by a ridiculously high percentage- say, 1 million percent- could it accomplish this objective? Explain.