14. Suppose the actual overnight interest rate is 5%. If the central bank lowers its target overnight rate to 4.5%, the money supply will eventually decrease as a result of an increase in excess reserves in the banking system. decrease as a result of open-market operations. increase as a result of open-market operations. decrease as a result of a decrease in the demand for new loans. increase as a result of an increase in excess reserves in the banking system.

Interest rate has been lowered by the central bank.whenever central bank lowers the interest…

Answered: 14. Suppose the actual overnight…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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14. Suppose the actual overnight interest rate is 5%. If the central bank lowers its target overnight rate to 4.5%, the money supply will eventually

		decrease as a result of an increase in excess reserves in the banking system.
		decrease as a result of open-market operations.
		increase as a result of open-market operations.
		decrease as a result of a decrease in the demand for new loans.
		increase as a result of an increase in excess reserves in the banking system.

Definition Definition Capital reserves held by banks or financial institutions over and above the reserves that are required to be maintained by the regulator toward its liabilities and for internal controls. For commercial banks, excess reserve is the amount over the standard reserve as decided by the central bank. These excess reserve funds are available in the form of cash and cash equivalents.

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