How will the lending capacity of banking system be affected

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Question 1: Suppose the Federal Reserve decided to sell $20 billion worth of government securities in the open market. How will the lending capacity of the banking system be affected if the reserve requirement is 5 percent?

Question 2: From the end of 2006 to the end of 2007, M1 increased from $1,373 billion to $1,434 billion

a. By what percentage did M1 increase?

b. If the Fed had used a fixed rule of 3 percent growth of the money supply, how large would M1 have been in 2007?

Reference no: EM132734234

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