Suppose the Federal Reserve decided to buy $15 billion worth of government securities in the open market. Instructions: Enter your responses as a whole number. a. By how much will M1 change initially if the entire $15 billion is deposited into transactions accounts? M1 will initially increase ✓by $ b. How will the lending capacity of the banking system be affected if the reserve requirement is 5 percent? Total lending capacity will increase by $ billion. c. How will banks induce investors to respond to this change in lending capacity? If the money supply increases, interest rates will decrease If the money supply decreases, interest rates will increase 15 billion. and investors will want to borrow more and investors will want to borrow fewer funds. funds.

Suppose the Federal Reserve decided to buy $15 billion worth of government securities in the open market. Instructions: Enter your responses as a whole number. a. By how much will M1 change initially if the entire $15 billion is deposited into transactions accounts? M1 will initially increase ✓by $ b. How will the lending capacity of the banking system be affected if the reserve requirement is 5 percent? Total lending capacity will increase by $ billion. c. How will banks induce investors to respond to this change in lending capacity? If the money supply increases, interest rates will decrease If the money supply decreases, interest rates will increase 15 billion. and investors will want to borrow more and investors will want to borrow fewer funds. 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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Question

I am stuck on B. Can you also show the formula as well?

Suppose the Federal Reserve decided to buy $15 billion worth of government securities in the open market.
Instructions: Enter your responses as a whole number.
a. By how much will M1 change initially if the entire $15 billion is deposited into transactions accounts?
M1 will initially increase
by $
b. How will the lending capacity of the banking system be affected if the reserve requirement is 5 percent?
Total lending capacity will increase
c. How will banks induce investors to respond to this change in lending capacity?
If the money supply increases, interest rates will decrease
If the money supply decreases, interest rates will increase
15 billion.
by $
FORELDNET
billion.
and investors will want to borrow more
and investors will want to borrow fewer
funds.
funds.

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