Suppose that the reserve requirement is 10% and that the Federal Reserve purchases $4 billion in bonds from a brokerage firm. Initially, as a result of this bond purchase, the money supply will by billion. Suppose the brokerage firm that sold the bonds to the Fed deposits the proceeds of the sale into its account with Nation's Bank. As a result of this deposit, Nation's Bank will be able to extend s billion in additional loans. Suppose that additional loans are extended throughout the banking system and that the proceeds are always redeposited back into checking accounts The M1 money supply will increase by s billion if banks use all of their additional reserves to extend new loans.

Suppose that the reserve requirement is 10% and that the Federal Reserve purchases $4 billion in bonds from a brokerage firm. Initially, as a result of this bond purchase, the money supply will by billion. Suppose the brokerage firm that sold the bonds to the Fed deposits the proceeds of the sale into its account with Nation's Bank. As a result of this deposit, Nation's Bank will be able to extend s billion in additional loans. Suppose that additional loans are extended throughout the banking system and that the proceeds are always redeposited back into checking accounts The M1 money supply will increase by s billion if banks use all of their additional reserves to extend new loans.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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