Reference no: EM132446046

Suppose the Fed buys 3 treasury bonds from the public. The people who sold these bonds keep all their money in a checking accounts. Each bond is worth $1000 (so the Fed has bought $3000 worth of bonds). Suppose further that the required reserve ratio is 0.12. Assuming no money is held as cash and that banks hold no excess reserves, by how much will this transaction eventually increase the money supply? (pleaseshow me in a way ican understand.)

The Fed buys treasury securities from banks, or sells securities to them , in order to change bank reserves. What interest rate, specifically, are they expecting the change by doing this and how would it impact the economy? In general, what is the Fed's motivation for making these transactions? (I mean, what reason do they give for this? Many people are skeptical of the Fed's motivations, and there are some popular conspiracies about it, but let's stick to the official reasons)