Question

POLICY PERSPECTIVES If the price level increases by 0.2 percent for every $100 billion increase in the money supply, by how much might prices rise if the Fed increases total reserves by $180 billion and the reserve requirement is 0.20?

Instructions: Round your response to two decimal places.

Answer 1

If the Fed increases total reserves by $180 billion, and the reserve requirement is 0.20, then prices might rise by 0.36% (0.0036).