The central bank buys $3,000 worth of bonds in the open market from JMH Bank. The required reserve ratio is 20%. (a) Immediately after the central bank's open-market bond purchase, will JMH Bank's liabilities increase, decrease, or stay the same? Explain. (b) By what amount will JMH Bank's reserves change before any new loans are made? Explain. (c) As a result of the central bank's open-market purchase of bonds, what is the dollar value of the
The central bank buys $3,000 worth of bonds in the open market from JMH Bank. The required reserve ratio is 20%. (a) Immediately after the central bank's open-market bond purchase, will JMH Bank's liabilities increase, decrease, or stay the same? Explain. (b) By what amount will JMH Bank's reserves change before any new loans are made? Explain. (c) As a result of the central bank's open-market purchase of bonds, what is the dollar value of the
Chapter1: Making Economics Decisions
Section: Chapter Questions
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Transcribed Image Text:2. Include correctly labeled diagrams, if useful or required, in explaining your answers. A correctly
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The central bank buys $3,000 worth of bonds in the open market from JMH Bank. The required
reserve ratio is 20%.
(a) Immediately after the central bank's open-market bond purchase, will JMH Bank's liabilities
increase, decrease, or stay the same? Explain.
(b) By what amount will JMH Bank's reserves change before any new loans are made? Explain.
(c) As a result of the central bank's open-market purchase of bonds, what is the dollar value of the
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AP Macroeconomics
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Banking
maximum amount of new loans JMH Bank can make? Explain.
(d) Calculate the maximum amount by which the money supply can change throughout the banking
system. Show your work.
(e) How will the change in the money supply in part (d) affect consumption spending and real GDP in
the short run? Explain.
Please respond on separate paper, following directions from your teacher.
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