1.C Suppose the Federal Reserve buys Treasury Bills and Treasury Bonds in the open market. Compared to a setting without such open market operations, which of the following answers are CORRECT? a) Banks short of reserves end up with the same amount of loans. b) Banks short of reserves end up with less deposits. c) Banks short of reserves end up with less equities. d) The federal funds rate is lower. e) The money supply is lower.

1.C Suppose the Federal Reserve buys Treasury Bills and Treasury Bonds in the open market. Compared to a setting without such open market operations, which of the following answers are CORRECT? a) Banks short of reserves end up with the same amount of loans. b) Banks short of reserves end up with less deposits. c) Banks short of reserves end up with less equities. d) The federal funds rate is lower. e) The money supply is lower.

ECON MACRO

5th Edition

ISBN:9781337000529

Author:William A. McEachern

Publisher:William A. McEachern

Chapter14: Banking And The Money Supply

Section: Chapter Questions

Problem 2.3P

See similar textbooks

Similar questions

Below is the balance sheet for a bank. Under "Other" it has listed "$X" just think of this as the dollar amount needed to make the balance sheet balance. It is not important what that value is for this question. AssetsLiabilitiesReserves 32Deposits 205Loans 150 Securities 53Other $X Using the balance sheet above, find the level of required reserves for this bank if the required reserve ratio = 8%(Give answers to 2 decimal places as needed)
a. Distinguish between legally required reserves and excess reserves. b. Why don’t banks hold a 100 percent reserves? How is the amount of reserves bank hold related to the amount of money the banking system creates? c. Define the term money multiplier? d. Assume that Lucky Bank is required to hold a 10% deposits as reserves, and there is a $3000 increase in demand deposits. Calculate the money multiplier? How much additional new demand deposits couldthe $3,000 deposit support?
3. An open-market sale of government bonds by the Fed results---------in reserves and ---------in the supply of money. a) an increase; a decrease (b) a decrease; a decrease (c) an increase; an increase (d) a decrease; an increase
2. Assume the Fed conducts open-market operations, buying $2000 of bonds (securities) directly from individuals. The required reserve ratio is 10%. (a) Draw this on your answer sheet. Then, modify the bank balance sheet so that it reflects the changes... Assets Liabilities Total reserves Deposits $10,000 $100,000 Securities (bonds) $10,000 Loans $80,000 (b) As a result of the open market operation, what are the excess reserves now? (c) Calculate the money multiplier. Show your work. (d) Calculate the maximum potential change in money supply as a result of the Fed action. Show your work.
1. Microsoft company is considering an investment project which costs $3 million today and it's payoff would be $5 at the end of year 7. If the interest rate is 9%, should Microsoft incest in the new project? 2. Using a graph of money market demonstrate what happens to the value of money and the price level if: a) The Fed sells government bonds in open-market operations. b) A decrease in real GDP decreases the demand for money
QUESTION 6 A central bank that desires to reduce the quantity of money will: Oa. a. Reduce the reserve requirements, reduce the discount rate, and sell the treasury securities in open market. a. Increase the reserve requirements, increase the discount rate, and purchase the treasury securities in open market. Ob. a. Increase the reserve requirements, reduce the discount rate, and sell the treasury securities in open market. Oc. Increase the reserve requirements, increase the discount rate, and sell the treasury securities in open market. Od. QUESTION 7 What is the principal tool by which the Fed attempts to change the monetary base? O a. Changes in the required reserve ratio O b.Discount loans O. Open Market Operations o d. Moral suasion QUESTION 8 Which of the following statements is true about M3? O a. Its total value more than four times as large as M2. O b. Its total value is smaller than that of M2. O C. It includes large-denomination time deposits. o d. Apart from those assets…
I need help on D through H! Please! Suppose the reserve requirement is 8% and a new deposit of $900 billion is made into the banking system. Create T accounts to analyze the following questions. a) Initially, reserves would increase by? $900 Billion b) Required reserves would increase by? $72 billion c) Excess reserves would increase by? $828 billion d) The first round of loans would amount to? e) The second round of loans would amount to approximately? f) For the entire macroeconomy, after the infinite rounds of loans were taken into account, money supply would increase by? g) If the Federal Reserve bought bonds worth $600 billion, money supply would increase by? h) If the Federal Reserve sold bonds worth $600 billion, money supply would decrease by?
Assume the banking system has $200 billion in demand deposits and $80 billion in reserves. In addition, assume that the required reserve ratio is 25%. Answer the following questionsa. a)How much excess reserves are in this system? b)What is the value of the money multiplier? c)How much of money supply will be created if the banking system lent out all of its excess reserves?
12)Assume the banking system has $100 billion in demand deposits and $10 billion in reserves. In addition, assumethat the required reserve ratio is 5%. Answer the following questions:a) How much excess reserves are in this system?b) What is the value of the money multiplier?c) What is the maximum amount of change in demand deposit creation that could take place if the bankingsystem lent out all of its excess reserves.
7. When the Federal Reserve sells assets from its portfolio to the public with the intent of changing the money supply, a. those assets are government bonds and the Fed's reason for selling them is to increase the money supply. b. those assets are government bonds and the Fed's reason for selling them is to decrease the money supply. C. d. those assets are items that are included in M2 and the Fed's reason for selling them is to increase the money supply. those assets are items that are included in M2 and the Fed's reason for selling them is to decrease the money supply.
1. You deposit $100 of currency into your account. Explain what happens to reserves , checkabledeposits, and monetary base? 2. Explain what the shadow banking system is and how it works. 3. Your bank has the following balance sheet:Assets LiabilitiesReserves $70 million Checkable deposits $200 millionSecurities $50 millionLoans $130 million Bank capital $50 millionIf the required reserve ratio is 10%, what actions should the bank manager take if there is anunexpected deposit outflow of $50 million? Explain your answer. 4. Explain and demonstrate graphically that if the central bank pursues targeting a monetaryaggregate, it is likely to lose control over the interest rate. 5. In the market for reserves, the federal funds rate is equal to the interest rate paid on excessreserves. Explain and demonstrate graphically the effect of an open market sale on the federalfunds rate.
1 .Money demand decreases when the Federal Reserve Bank increases the Federal Reserve discount rate. Select one: a. TRUE b. FALSE 2 .The money supply increases when the Federal Reserve Bank decreases the Federal Reserve discount rate. Select one: a. TRUE b. FALSE