Answer to Question #235561 in Macroeconomics for Samra

Question

Suppose that you are the member of the Board of Governors of the State Bank. The economy is experiencing the severe unemployment. What changes in

A. The Reserve Ratio
B. The Discount Rate
C. Open Market Operations

would you recommend? Explain in each case how the change you advocate would affect the money supply, interest rate and aggregate demand.

Answer 1

A. The reserve ratio will decrease below the expected value. I would recommend changes in the prices within the economy. This involves the trade operations and adherence to government protocols within business people. This would help in boosting the reserve ratio.

B. The discount rate needs to be increased. This will encourage more spendings within customers. More spendings will increase the revenue for the government.

C. Open market operations need to be increased. The increase in the operations create more opportunities for creating revenue. This will similarly help in stabilizing the economy.