a) money supply will decrease because there is an open market sale of bonds which will decrease liquidity in the market.
b) money supply will change by the size of the multiplier which is in this case 1 / 20% or 5. Hence money supply decreases by 50 million dollar x 5 or 250 million dollar. The answer is a decline of 250 million dollar.
8. The Fed conducts an open market sale of bonds, $50 million, and the reserve ratio...
The Fed conducts an open market sale of bonds. $50 million and the reserve ratio is 20% and after the sale. a. Does the money supply INCREASE or DECREASE? (circle) b. How much does the money supply change? 9. Suppose a country has a 100% reserve requirement for all banks. a. How much does the money supply change from a deposit of $100 by a housen b. What is the role of banks in moving funds from depositors to borrowers?...
Problem 7: The Fed conducts $20 million open-market purchase of government bonds. If the required reserve ratio is 10 percent, what is the largest possible increase in the money supply that could result? Explain. What is the smallest possible increase? Explain.
When the Federal Reserve conducts open market operations, it buys or sells government bonds. buys and sells foreign currency. manipulates of the rate at which it loans to member banks. increases or decreases the required reserve ratio. How will the Fed's policy action change the money supply? Use only the actions corresponding to your choice in the previous part. The money supply increases The money supply decreases Answer Bank Answer Bank The Fed sells foreign currency The Fed buys bonds...
Discussion Questions for Tuesday, Apr. 23 1. Suppose the Fed conducts $10 million open market purchase from Bank A. If Bank A and all the other banks use reserves to purchase only securities, what will happen to deposits in the banking system and how much does it expand? 2. Let's assume that in a hypothetical economy currency in circulation is $600 billion, the amount of checkable deposits is $900 billion, excess reserves are $15 billion and required reserve ratio is...
The Fed (Federal Reserve) desires to decrease the money supply. It conducts an _____________________ of U.S. government bonds. Select one: a. open-market sale b. open-market purchase c. none of the above
3. Assume the required reserve ratio is 40% and the Open Market Committee of the FED sells $500 billion in bonds to the public. Assuming banks give out as many loans as possible, what is the total change in the money supply? What is the total change in Transaction Accounts? If the M1 was originally $9500 billion, what is the new M1 ( After the change)You must show your work. 4. Assume the required reserve ratio is 10% and the...
13. If the Fed conducts Open Market Purchase, then: a. price of bonds increase, interest rates decrease and money supply decreases. b. price of bonds decrease, interest rates increase and money supply decreases. c. price of bonds increase, interest rates decrease and money supply increases. d. price of bonds decrease, interest rates decrease and money supply increases.
5) The Fed makes an open market sale of $500 in bonds to a bank for reserves. The reserve requirement is 10%. Show the changes on the balances sheets of the Fed and the bank. What is the change in the monetary base? What is the change in the money supply? You can use the simple formula for the money multiplier.
6. Suppose that the Bank of Canada conducts an open market purchase of $2000 from a commercial bank. Assuming all banks’ desired reserve ratio is 0.20, or 20 percent, and currency drain ratio is 0. Answer the questions below: a. Show the effects of open market operation on Bank of Canada’s balance sheet, and commercial bank’s balance sheet. b. By how much monetary base will increase? By how much money supply will increase? c. If banks’ desired reserve ratio increases...
Question 33 5 pts If the required-reserve ratio is 10 percent and the Fed buys $25 million worth of government bonds, the maximum potential change in the money supply will be a(n): increase of $250 million. increase of $25 million. decrease of $25 million. decrease of $250 million.