Macroeconomics 6th Edition by Robert Hall,Marc Lieberman

Exercise 7

Suppose that the money supply is $1 trillion. Decision makers at the Federal Reserve decide that they wish to use open market operations to reduce the money supply by $100 billion, or by 10 percent. If the required reserve ratio is 0.05, and the simple money multiplier formula applies, what does the Fed need to do to carry out the planned reduction?