ECON 272

In Class Exercise Eleven – The FED

1.  The FED stands for the ________________ _____________________ ________________________ and which macro policy does the FED conduct?

2.  If a deposit of $4,000 is made, by how much can a single bank potentially increase the money supply because of this deposit (assume a required reserve ratio of 3%)? 

3.  Using the information from the question above, by how much can the entire system potentially increase the money supply?  

4.  What two assumptions are made in the analysis you did in the question above (such that the simple money multiplier provides the correct answer)?  

5.  Although the credit expansion that we talked about in the above questions appears to increase the money supply overall, it does not.  Why not? 

Then, how does the money supply get increased?  In your answer talk about what the FED is trying to manipulate generally and why.

6.  What questions do you still have about this material?