In the April of 2020, the Federal Reserve bought high-yield bonds and bonds issued by state and local governments. This action would increase monetary base and may increase M1 over time. decrease monetary base and may decrease M1 over time. O increase both monetary base and M1 for sure. decrease both monetary base and M1 for sure.

In the April of 2020, the Federal Reserve bought high-yield bonds and bonds issued by state and local governments. This action would increase monetary base and may increase M1 over time. decrease monetary base and may decrease M1 over time. O increase both monetary base and M1 for sure. decrease both monetary base and M1 for sure.

Economics: Private and Public Choice (MindTap Course List)

16th Edition

ISBN:9781305506725

Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

Publisher:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

Chapter13: Money And The Banking System

Section: Chapter Questions

Problem 2CQ

See similar textbooks

Similar questions

Let the reserve requirement be 15 percent for deposits. Assume there are not excess reserves. If the currency demand equals 40 percent of deposits and total reserves equal $60 billion, then an open markey sale of $1.5 billion in government bonds should Reduce the money supply from $160 billion to $156 billion Increase the money supply from $400 billiion to $410 billion Reducce the money supply from $400 billion to $390 bilion Reduce the money supply from $560 billion to $546 billion
Suppose the Fed decided to purchase $100 billion worth of government securities in the open market. Assume all payments are directly deposited into or withdrawn from the banking system. What impact would this action have on the economy? Specifically, answer the following questions. Instructions: Enter your responses as a whole number. a. How will M1 be affected initially? O Decrease by $100 billion O Increase by $100 billion O Not enough information to answer O No initial change to M1 b. By how much will the banking system's lending capacity increase if the reserve requirement is 20 percent? $ billion c. Must interest rates rise or fall to induce investors to utilize this expanded lending capacity? O Rise O Fall d. By how much will aggregate demand initially increase if investors borrow and spend all the newly available credit? $ billion e. Under what circumstances would the Fed be pursuing such an open market policy? O Inflation O Recession f. To attain those same objectives, what…
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?
A rise in rr raises the money multiplier. O True O False
In April 2009, year-over-year the growth rate of M1 fellto 6.1%, while the growth rate of M2 rose to 10.3%. InSeptember 2013, the growth rate of the M1 money supply was 6.5%, while the growth rate of the M2 moneysupply was about 8.3%. How should Federal Reservepolicymakers interpret these changes in the growthrates of M1 and M2?
Which volume of OMOs is required to keep money supply unchanged, if demand for borrowedreserves increases by $0.5 trillion and the central bank decreases required reserves ratio from 10 to7% (the volume of required reserves created by the banking system was 1.5 trillion)? Use the conceptof a money multiplier and currency ratio of 0.2 and excess reserves ratio of 0.03.
Explain whether each of the following eventsincreases or decreases the money supply.a. The Fed buys bonds in open-market operations.b. The Fed reduces the reserve requirement.c. The Fed increases the interest rate it pays onreserves.d. Citibank repays a loan it had previously takenfrom the Fed.e. After a rash of pickpocketing, people decide tohold less currency.f. Fearful of bank runs, bankers decide to hold moreexcess reserves.g. The FOMC increases its target for the federalfunds rate.
8. The money multiplier declined significantly during the period 1930–1933 and alsoduring the recent financial crisis of 2008–2010. Yet the M1 money supply decreasedby 25% in the Depression period but increased by more than 20% during the recentfinancial crisis. What explains the difference in outcomes?
Bank A:Reserves on hand $38,000Deposit in the Fed $30,000US government bonds $12,000Checking account balances $120,000Savings account balances $25,000Bank B:Reserves on hand $50,000US government bonds $7500Savings account balances $20,000Checking account balances $100,000 In addition, people in this economy hold $8800 in cash, and all banks have the same reserve requirements we've used all semester. Calculate the (economy-wide) currency ratio, carefully following all numeric instructions. Do not convert the ratio into percent. In other words, if you get k of 0.99, enter only 0.99 in the blank.
Bank A:Reserves on hand $38,000Deposit in the Fed $30,000US government bonds $12,000Checking account balances $120,000Savings account balances $25,000Bank B:Reserves on hand $50,000US government bonds $7500Savings account balances $20,000Checking account balances $100,000 In addition, people in this economy hold $8800 in cash, and all banks have the same reserve requirements we've used all semester. Calculate this economy's monetary base, carefully following all numeric instructions.
Bank A:Reserves on hand $38,000Deposit in the Fed $30,000US government bonds $12,000Checking account balances $120,000Savings account balances $25,000Bank B:Reserves on hand $50,000US government bonds $7500Savings account balances $20,000Checking account balances $100,000 In addition, people in this economy hold $8800 in cash, and all banks have the same reserve requirements we've used all semester. Calculate the "real-world multiplier," carefully following all numeric instructions.
Bank A:Reserves on hand $38,000Deposit in the Fed $30,000US government bonds $12,000Checking account balances $120,000Savings account balances $25,000Bank B:Reserves on hand $50,000US government bonds $7500Savings account balances $20,000Checking account balances $100,000 In addition, people in this economy hold $8800 in cash, and all banks have the same reserve requirements we've used all semester. Calculate the amount of cash in Bank A, carefully following all numeric instructions.