Answered: 5)Answer the question on the assumption…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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5)Answer the question on the assumption that the legal reserve ratio is 10 percent. Suppose that the Fed sells $1,000 of government securities to commercial banks (paid for out of commercial bank reserves) and buys $1,000 of securities from individuals, who deposit the cash in checking accounts.

As a result of the given transactions, excess reserves in the banking system

Group of answer choices

remain unchanged.

rise by $100.

fall by $100.

rise by $1,000

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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