The reserve requirement is 10% Suppose that the Fed sells $100,000 worth of U.S. govemment securities...

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The reserve requirement is 10% Suppose that the Fed sells $100,000 worth of U.S. govemment securities...

The reserve requirement is 10% Suppose that the Fed sells $100,000 worth of U.S. govemment securities to a bond dealer, ofectronically debiting the dealer's depoailt account a Which of the following correctly descnibes the immediate effect of this transaction?

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Answer 1

Answer #1

Selling of the government securities leads to decrease in the level of money supplied in the economy. As an immediate effect of this transaction, this will lead to $10,000 fall in the amount of the reserves and fall in the money supplied by $100,000 - 10,000 = $90,000.

Thus, as an immediate effect of this transaction, the money supply in the economy will fall by $90,000.

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Answer 2

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The reserve requirement is 10% Suppose that the Fed sells $100,000 worth of U.S. govemment securities...

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