Question

If the banks in a market economy were subject to a 20% reserve requirement by the Federal Reserve System, then a deposit of $1000 in any one bank means that the bank could lend out

D Question 29 1 pts 7.1.1 If the banks in a market economy were subject to a 20% reserve requirement by the Federal Reserve System, then a deposit of $1000 in any one bank means that the bank could lend out O $1,000. $800 $500 $200 DQuestion 30 1 pts 7.1.2 If the banks in a market economy were a subject to a 25% reserve requirement by the Federal Reserve System, then a new deposit of $1000 in any one bank would cause the money supply to expand by as much as $1,000. O $800 $4.000. $3,000. DQuestion 31 1 pts the discount rate, and bonds, 7.2.5 If the Fed wanted to increase the money supply it would the reserve requirement buy; raise; lower O sell; lower; lower O sell; lower; raise O buy; lower; lower

Answer 1

(Question 29) Option (2)

Money lent out = Deposit x (1 - Reserve ratio) = $1000 x (1 - 0.2) = $1000 x 0.8 = $800

(Question 30) Option (3).

Increase in money supply = New deposit / Reserve ratio = $1000 / 0.25 = $4000

(Question 31) Option (4)

Money supply is increased by open market purchase of securities, lower required reserves ratio and lower discount rate.