China Raises Reserve Requirements
The People's Bank of China, the country's central bank, raised the reserve requirements of its top commercial banks to put a squeeze on the credit market following a spell of robust economic growth.
Source: International Business Times, October 11, 2010
a. If the United States had the economic performance of China, what monetary policy actions would the Fed's most likely take?
b. How would you expect China's monetary policy of squeezing the credit market to influence aggregate demand in China? Would you expect it to have a multiplier effect? Why or why not?
c. What actions might the People's Bank of China take to slow the economy?