Refer to the given data. Suppose the Fed wants to increase the money supply by $400 billion to drive down interest rates and stimulate the economy. Assuming that the money multiplier is operating to full effect, to accomplish the desired increase, the Fed could:





Answer the question on the basis of the following consolidated balance sheet of the

commercial banking system. Assume that the reserve requirement is 10 percent. All figures

are in billions and each question should be answered independently of changes specified in

any preceding ones.



A.  sell $20 billion of U.S. securities to the banks.

B.  buy $20 billion of U.S. securities from the banks.

C.  sell $40 billion of U.S. securities to the banks.

D.  buy $40 billion of U.S. securities from the banks.


D.  buy $40 billion of U.S. securities from the banks.

Economics

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