Question

Consider Figure 15-7. Describe the basic shape that this figure would take if the Fed had instead generated multiple contractions in the money supply by removing 100,000$ in reserves from the banking system via an open market sale.

Short answer

The cash supply compression curve would be descending inclining and raised in shape.

Step-by-step solution

introduction

At the point when the Federal Reserve infuses$\$100000$ into the financial framework through an open market buy, the cash supply in the economy grows over various rounds. In each progressive round, cash supply increments by a more modest sum than it did in the past round.

explanation

Assuming the Federal Reserve eliminates$\$100000$from the financial framework through an open market deal, cash supply in the economy contracts over different rounds. In each progressive round, the cash supply diminishes by a more modest sum than it did in the past round. All in all, cash supply contracts at a diminishing rate. Consequently, the bend portraying constriction in cash supply would be descending inclining and arched in shape.