Problem 14-03 algo Suppose the Federal Reserve decided to buy $25 billion worth of government securities in the open market. a. By how much will M1 change initially if the entire $25 billion is deposited into transactions accounts? Note: If M1 decreases be sure to include a negative sign (-) in front of your answer. M1 will initially change by: b. How will the lending capacity of the banking system be affected if the reserve requirement is 10 percent? Note: If lending capacity decreases be sure to include a negative sign (-) in front of your answer. Total lending capacity will change by: billion c. How will banks induce investors to respond to this change in lending capacity? If the money supply increases, interest rates will If the money supply decreases, interest rates will billion and investors will want to borrow more funds. and investors will want to borrow fewer funds.

Problem 14-03 algo Suppose the Federal Reserve decided to buy $25 billion worth of government securities in the open market. a. By how much will M1 change initially if the entire $25 billion is deposited into transactions accounts? Note: If M1 decreases be sure to include a negative sign (-) in front of your answer. M1 will initially change by: b. How will the lending capacity of the banking system be affected if the reserve requirement is 10 percent? Note: If lending capacity decreases be sure to include a negative sign (-) in front of your answer. Total lending capacity will change by: billion c. How will banks induce investors to respond to this change in lending capacity? If the money supply increases, interest rates will If the money supply decreases, interest rates will billion and investors will want to borrow more funds. and investors will want to borrow fewer funds.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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