맨큐의 경제학 29장 복습문제

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맨큐의 경제학 복습문제를 영어로 각 2문제씩 풀이해 놓은 레포트로 A+ 받은 것입니다.

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8. What are reserve requirements? What happens to the money supply when the Fed raises reserve requirements?

9. Why can`t the Fed control the money supply perfectly?

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8. What are reserve requirements? What happens to the money supply when the Fed raises reserve requirements?

● reserve requirements : regulations on the minimum amount of reserves that banks must hold against deposits
The Fed influences the money supply with reserve requirements.
Reserve requirements influence how much money the banking system can create with each dollar of reserves. An increase in reserve requirements means that banks must hold more reserves and, therefore, can loan out less of each dollar that is deposited; as a result, it raised the reserve ratio, lowers the money multiplier, and decreases the money supply.
Conversely, a decrease in reserve requirements lowers the reserve ratio, raises the money multiplier, and increases the money supply.

The Fed uses change in reserve requirements only rarely because frequent changes would disrupt the business of banking. When the Fed increases reserve requirements, for instance, some banks find themselves short of reserves, even though they have seen no change in deposits. As a result, they have to curtail lending until they build their level of reserves to the new required level.

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