contestada

1. Assume that banks hold no excess reserves and that all currency is deposited into the banking system. If the required reserve ratio is 10.00%, and the Federal Reserve wants to increase the money supply by $35.00 million, the Fed would need to make an open market purchase of $____million.
2. Assume that banks hold no excess reserves and that all currency is deposited into the banking system. If the required reserve ratio is 15.00%, and the Federal Reserve wants to decrease the money supply by $60.00 million, the Fed would need to make an open market sale of $____million.
3. Suppose that banks decide to hold excess reserves. In order for the Federal Reserve to change the money supply by the same amounts as in parts 1 and 2, it would need to make:______.
A. a larger open market purchase but a smaller open market sale.
B. a smaller open market purchase and a smaller open market sale.
C. a larger open market purchase and a larger open market sale.
D. a smaller open market purchase but a larger open market sale.

Respuesta :

Parrain

Answer:

1. Fed wants to increase by $35 million.

First find money multiplier:

= 1 / required reserves ratio

= 1 / 10%

= 10

Increase in money supply = Multiplier * Open market purchase

Open market purchase = Increase in money supply / Multiplier

= 35 million / 10

= $3.5 million

2. Fed wants to increase by $60 million.

Multiplier = 1 / 15%

= 6.667

Open market purchase = 60 million / 6.667

= $9 million

3. C. a larger open market purchase and a larger open market sale.

The Fed would have to buy more securities than before so that it can put in more money into the system such that even if banks decide to hold on to excess reserves, there would still be enough money circulating to achieve the Fed's objectives.

Otras preguntas