9. Suppose the Federal Reserve engages in open market purchases of $10,000. If reserve requirements are...
9. Suppose the Federal Reserve engages in open market purchases of $10,000. If reserve requirements are 9%, then using the simple money multiplier, what will happen to total banking deposits?
a. They will increase by $111,111.11
b. They will decrease by $111,111.11
c. They will increase by $101,111.11
d. They will increase by $90,000
Homework Answers
When Fed purchase goods in open market it increases deposits of banks.
Total banking deposits increases = 1/reserve requirement x Open market purchase
= 1/0.09 x 10,000 = 11.111111 x 10,000 = $ 111111.11
Answer is a) They will increase by $ 111,111.11
Add Answer to:
9. Suppose the Federal Reserve engages in open market purchases
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Assume that banks do not hold excess reserves and that households do not hold currency, so the only form of money is demand deposits. To simplify the analysis, suppose the banking system has total reserves of $500. Determine the money multiplier and the money supply for each reserve requirement listed in the following table.Reserve RequirementSimple Money MultiplierMoney Supply(Percent)(Dollars)25 10 A higher reserve requirement is associated with a money supply.Suppose the Federal Reserve wants to increase the money supply...
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8. The reserve requirement, open market operations, and the money supply Assume that banks do not...
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