As a result of the Fed's sale of $3,000 worth of government securities to First Main Street Bank, the bank becomes reserve deficient. Suppose that Paolo, a First Main Street Bank's customer, re-pays back the $3,000 loan he took out a few months ago. Which of the following most accurately describes First Main Street Bank's actions? O The bank creates a $87,000 loan. O The bank keeps the $3,000 as reserves. O The bank keeps the $300 as reserves. The bank creates a $3,000 loan. 4 The money supply in the economy is $

As a result of the Fed's sale of $3,000 worth of government securities to First Main Street Bank, the bank becomes reserve deficient. Suppose that Paolo, a First Main Street Bank's customer, re-pays back the $3,000 loan he took out a few months ago. Which of the following most accurately describes First Main Street Bank's actions? O The bank creates a $87,000 loan. O The bank keeps the $3,000 as reserves. O The bank keeps the $300 as reserves. The bank creates a $3,000 loan. 4 The money supply in the economy is $

Macroeconomics: Private and Public Choice (MindTap Course List)

16th Edition

ISBN:9781305506756

Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

Publisher:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

Chapter13: Money And The Banking System

Section: Chapter Questions

Problem 18CQ

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Similar questions

Humongous Bank is the only bank in the economy. The people in this economy have 20 million in money, and they deposit all their money in Humongous Bank. Humongous Bank decides on a policy of holding 100 reserves. Draw a T-account for the bank. Humongous Bank is required to hold 5 of its existing 20 million as reserves, and to loan out the rest. Draw a T-account for the bank after it has made its first round of loans. Assume that Humongous bank is part of a multibank system. How much will money supply increase with that original 19 million loan?
Explain what would happen if banks were notified they had to increase their required reserves by one percentage point from, say, 9 to 10 of deposits. What would their options be to come up with the cash?
Explain how to use an open market operation to expand the money supply.
If the central bank sells 500 in bonds to a bank that has issued 10,000 in loans and is exactly meeting the reserve requirement of 10, what will happen to the amount of loans and to the money supply in general?
Can you name some item that is a store of value, but does not serve the other functions of money?