B. Will this increase the monetary base by $10 million, more than $10 million, or less than $10 million? C. Will this increase the money supply by $10 million, more than $10 million, or less than $10 million? Why? D. Suppose that, when people receive $100, they choose to hold $20 as cash and $80 as deposits. Also, banks want to hold 5% of deposits as reserves. Calculate the money multiplier, and the increase in the money supply from the Fed's action. E. What happens in the money market in the short run? (Draw a graph, but also explain in words.) F. What happens in the money market in the long run?
B. Will this increase the monetary base by $10 million, more than $10 million, or less than $10 million? C. Will this increase the money supply by $10 million, more than $10 million, or less than $10 million? Why? D. Suppose that, when people receive $100, they choose to hold $20 as cash and $80 as deposits. Also, banks want to hold 5% of deposits as reserves. Calculate the money multiplier, and the increase in the money supply from the Fed's action. E. What happens in the money market in the short run? (Draw a graph, but also explain in words.) F. What happens in the money market in the long run?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
Related questions
Question
![B. Will this increase the monetary base by $10 million, more than $10 million, or less than $10
million?
C. Will this increase the money supply by $10 million, more than $10 million, or less than $10
million? Why?
D. Suppose that, when people receive $100, they choose to hold $20 as cash and $80 as
deposits. Also, banks want to hold 5% of deposits as reserves. Calculate the money multiplier,
and the increase in the money supply from the Fed's action.
E. What happens in the money market in the short run? (Draw a graph, but also explain in
words.)
F. What happens in the money market in the long run?](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F3df1db03-604c-4838-983c-6ed01f67c696%2F4acc4b60-039f-4e4d-aa5c-0b810ee813b9%2F66bmjvm_processed.jpeg&w=3840&q=75)
Transcribed Image Text:B. Will this increase the monetary base by $10 million, more than $10 million, or less than $10
million?
C. Will this increase the money supply by $10 million, more than $10 million, or less than $10
million? Why?
D. Suppose that, when people receive $100, they choose to hold $20 as cash and $80 as
deposits. Also, banks want to hold 5% of deposits as reserves. Calculate the money multiplier,
and the increase in the money supply from the Fed's action.
E. What happens in the money market in the short run? (Draw a graph, but also explain in
words.)
F. What happens in the money market in the long run?
![2. Suppose the Fed does an open market purchase of $10 million worth of securities from TD
Bank. Their assets & liabilities before the purchase are shown below (in millions of dollars):
The Fed
TD Bank
Assets
Liabilities
Assets
Liabilities
900 (securities)
5,000 (currency)
30 (TD's reserve. acc.)
700 (securities)
30 (res. acc. at Fed)
550 (deposits)
A. How does this affect the Fed's assets & liabilities? How does this affect TD's assets &
liabilities? (Use the following table. If you do your work on loose-leaf, just copy the table by
hand.)
The Fed
TD Bank
Assets
Liabilities
Assets
Liabilities
(securities)
(currency)
(securities)
(deposits)
(TD's reserve acc.)
(reserve acc. at Fed)](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F3df1db03-604c-4838-983c-6ed01f67c696%2F4acc4b60-039f-4e4d-aa5c-0b810ee813b9%2Fyway0xg_processed.jpeg&w=3840&q=75)
Transcribed Image Text:2. Suppose the Fed does an open market purchase of $10 million worth of securities from TD
Bank. Their assets & liabilities before the purchase are shown below (in millions of dollars):
The Fed
TD Bank
Assets
Liabilities
Assets
Liabilities
900 (securities)
5,000 (currency)
30 (TD's reserve. acc.)
700 (securities)
30 (res. acc. at Fed)
550 (deposits)
A. How does this affect the Fed's assets & liabilities? How does this affect TD's assets &
liabilities? (Use the following table. If you do your work on loose-leaf, just copy the table by
hand.)
The Fed
TD Bank
Assets
Liabilities
Assets
Liabilities
(securities)
(currency)
(securities)
(deposits)
(TD's reserve acc.)
(reserve acc. at Fed)
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