By selling grounds, because by selling bounce to the, uh, to the economy, it is taking the money back to the bank. But how so? The fact can decrease money supplied by lying. 8 If the federal funds rate gets lowered from 2. So the answer four questions see, is that the flat has decreased money supply. If the federal funds rate is 2, then the prime rate would be approximately 5, as it usually runs about three points above the federal funds rate. So we have to move this vertical line here, moving to left to intersect this blue eye at this point so that the price level doesn't change. So we know that the fat has to decrease money supply. The Fed can influence the money supply by modifying reserve requirements, which generally refers to the amount of funds banks must hold against deposits in bank. So we want this new new global wine intersect money supply at this level off Christ, which is one over p. Why should they do so? If the fat wants the price level to be what it used to be, which is the black dot here. See if the fat wants to keep the price level stable. So the value off money goes down, so the old world price level goes up. We have this new equally grim here, so the value off money decrease under the circumstance that money supply doesn't change because question be says that the fact there's nothing which means that this money supply steel vertical line here and the musical the room is going to be this Davis won over P crime. At its May meeting, the central bank hiked rates by 0.50, and in June it got even more aggressive, raising rates by 0.75, the largest increase since 1994. It's important to note that the Fed's total assets include funds held in reserve. 9 The chart below shows the relationship between total assets and total reserves from 2007 through 2021. However, if the reserve requirement were 5 percent, a 100 T-bill purchase would lead to a 2,000 increase in the money supply. By mid-2021, it topped 8.0 trillion, and in early 2022 it exceeds 8.8 trillion. This example shows that if the reserve requirement is 10 percent, the Fed could increase the money supply by 1,000 by purchasing a 100 Treasury bill (T-bill) in the open market. The money used to be this black dot here but a cz. In March, the Fed raised its target federal funds rate by 0.25, the first rate hike in more than three years. In 2008, QE increased the Fed's total assets to 2.3 trillion.
You know, question be if the fat does not respond to this event, what will happen to the price level? So in this graph, we know that on the Y axis is the value of money which is one over p so on. We know that now, if people are more willing to use credit card, they hold less cash. So question, eh? How does this defend expected? You mean for money? So, first of all, we have to troll this, um, money supply and money demand figure as Anya bigger to off this chapter.
Question to suppose that changes and frank regulations expand the of availability of credit cards so that people need to hold last cash.
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