In the overview, it is assumed that the
public holds .40 of each dollar and that the
Fed sets the
reserve ratio at .10. What happens to the
money multiplier if, due to the economy, the public holds .50 cents on the dollar and the
Fed changes the reserve rate at .15? Assuming the same monetary base, what happens to the M1 stock of money? If the Fed wants to keep the stock of money the same, what do they need to set the monetary base to? What does this mean? How will the Fed do this?