Cash held by public Transactions deposits Required reserves Excess reserves U.S. bonds held by public Item Amount O The money supply will increase by $25 billion The money supply will increase by $125 billion $80 billion $150 billion $30 billion $0 billion $350 billion If the Federal Reserve buys $25 billion in bonds from the public, then which of the following is true after the multiplier process? Excess reserves would go up by $20 billion. O The public will hold $375 billion in bonds. O

Cash held by public Transactions deposits Required reserves Excess reserves U.S. bonds held by public Item Amount O The money supply will increase by $25 billion The money supply will increase by $125 billion $80 billion $150 billion $30 billion $0 billion $350 billion If the Federal Reserve buys $25 billion in bonds from the public, then which of the following is true after the multiplier process? Excess reserves would go up by $20 billion. O The public will hold $375 billion in bonds. O

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Assume that the Federal Reserve (Fed) sets the federal funds rate target at 4% and conducts open market operations to hit the 4% target. Shift the appropriate curve to show the Fed meeting its target. Federal funds rate 10 9 8 7 6 5 3 2 1 0 10 20 Supply of reserves Federal funds rate (target) Federal funds rate (current) 30 40 50 60 Reserves at the Fed 70 80 The Federal Reserve 90 100 raised the discount rate. lowered the discount rate. O sold U.S. Treasury securities. bought U.S. Treasury securities. Demand for reserves
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Fill in the blanks to make the following statements correct. a. Suppose the Bank of Canada purchases a $10,000 bond from Bob's Financial Firm, and Bob's deposits its cheque at the CIBC. This is a new deposit to the banking system and will allow the commercial banks to lend more b. If the CIBC has a target reserve ratio of 20 percent, it will keep $ 2000 as reserves and will lend $ 8000. c. Assuming there is no cash drain from the banking system, the ultimate effect is x$10,000 = $ in deposits in the banking system of a decrease an increase
Question 3 In the market for reserves, suppose that the federal funds rate and discount rate are both at 7%. If the Federal Reserve Bank sells securities in the open market, then the equilibrium rate for reserves will and the amount of borrowed reserves will O not change; decrease O not change; increase O rise; increase O rise; decrease Question 4 When the Federal Reserve Bank lowers the reserve requirements for commercial banks in the economy, this causes the curve for reserves to decrease and so the curve shifts to the ----- O demand; right O demand: left O supply; right O supply; left
The following is information about a banking system (all figures are in $millions): Target reserve ratio New cash deposits into the whole system Excess reserves before the above 10 percent $20 0 deposits Refer to the above information to answer this question. What will the $20 of new deposits into chequing accounts initially create? a. $18 of excess reserves. b. $100 of new demand deposits. c. $18 of new demand deposits. d. Excess reserves of $20.
Table 14 shows the balance sheet of the Tenth National Bank Assets Liabilities Reserves $517 Deposits $4,136 Loans $3,619 Total: $4,136 Total: $4,136 Refer to Table 14. Assume that this bank lends out its entire excess reserves. If Jerry deposits $426 of cash in a checking account in the Tenth National Bank, what's the maximum change in the money supply in the economy? O $2,982 G O $3,408 O $3,696 O $4,200 O $4,136
What is the ratio of reserves to deposits that a bank finds prudent to hold? Describe the situation in which a bank has $10 million in actual reserves and $8 million in desired reserves. The ratio of reserves to deposits that a bank finds prudent to hold is its _______. When a bank has $10 million in actual reserves and $8 million in desired reserves, it has _______. A. desired deposit ratio; a shortage of deposits B. desired reserve ratio; surplus reserves C. desired reserve ratio; insufficient reserves D. planned reserve ratio; a currency drain
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If banks increase their holdings of excess reserves O a. the money multiplier increases and the money supply decreases. O b. the money multiplier decreases and the money supply increases. c. the money multiplier and the money supply decrease. O d. the money multiplier and the money supply increase.
Assume that a bank receives a deposit of $1,000 in cash, puts aside $200 as required reserves, and makes a loan of $800, these transactions imply that: O the money supply by the whole banking system can increase by $1,000. O the money supply by the whole banking system can increase by $4,000. the money supply by the whole banking system can increase by $8,000. O the money supply by the whole banking system can increase by $5,000.
Explain which interest rate sets the upper limit on the federal funds rate. The upper limit on the federal funds rate is the _______ because _______. A. discount rate; the discount rate must be 1 percent higher than the federal funds rate B. interest on reserves rate; a bank will borrow reserves only if the federal funds rate is less than the interest on reserves rate C. discount rate; a bank will borrow reserves only if the federal funds rate is less than the discount rate D. long-term real interest rate; the loanable funds market determines the federal funds rate range