Question

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 $40 billion and the reserve requirement is 0.05?

Instructions: Round your response to two decimal places.

Answer 1

Answer: 1.60

Explanation:1.) 40/.05= 800 bill 2.) 0.2 increase, so 0.2x(800/100)=1.6