1. While cleaning your apartment, you lookunder the sofa cushion and find a $100 billand half a taco. You deposit the bill in yourchecking account. If the reserve ratio is 10percent, then $100 can create up to(Assume that banks keep exactly the amountrequired in reserves and lend out the rest.)a. $500 of new moneyb. $1,000 of new moneyc. $400 of new moneyd. $900 of new money2. After the FOMC meeting, the Fed decidesto raise the discount rate. As a result, bankswould borrowa. more from the Fed so money supplyincreasesb. less from the Fed so money supplydecreasesc. more from the Fed so money supplydecreasesd. less from the Fed so money supplyincreases3. The Fed Funds Rate is the interest rate thatbanks charge one another when they lendreserves. If the Fed Funds Rate is below thelevel the Fed targeted, the Fed can move therate up towards its target bya. purchasing government bonds. Thispurchase would increase bank reservesb. selling government bonds. This sale woulddecrease bank reservesc. purchasing government bonds. Thispurchase would decrease bank reservesd. selling government bonds. This sale wouldincrease bank reserves

Since you have asked multiple questions, we will solve the first question for you. If you want any…

1. While cleaning your apartment, you look under the sofa cushion and find a $100 bill and half a taco. You deposit the bill in your checking account. If the reserve ratio is 10 percent, then $100 can create up to (Assume that banks keep exactly the amount required in reserves and lend out the rest.)

1. While cleaning your apartment, you look under the sofa cushion and find a $100 bill and half a taco. You deposit the bill in your checking account. If the reserve ratio is 10 percent, then $100 can create up to (Assume that banks keep exactly the amount required in reserves and lend out the rest.)

Exploring Economics

8th Edition

ISBN:9781544336329

Author:Robert L. Sexton

Publisher:Robert L. Sexton

Chapter25: Money, Banking, And The Federal Reserve System

Section: Chapter Questions

Problem 24P

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Question

1. While cleaning your apartment, you look
under the sofa cushion and find a $100 bill
and half a taco. You deposit the bill in your
checking account. If the reserve ratio is 10
percent, then $100 can create up to
(Assume that banks keep exactly the amount
required in reserves and lend out the rest.)
a. $500 of new money
b. $1,000 of new money
c. $400 of new money
d. $900 of new money
2. After the FOMC meeting, the Fed decides
to raise the discount rate. As a result, banks
would borrow
a. more from the Fed so money supply
increases
b. less from the Fed so money supply
decreases
c. more from the Fed so money supply
decreases
d. less from the Fed so money supply
increases
3. The Fed Funds Rate is the interest rate that
banks charge one another when they lend
reserves. If the Fed Funds Rate is below the
level the Fed targeted, the Fed can move the
rate up towards its target by
a. purchasing government bonds. This
purchase would increase bank reserves
b. selling government bonds. This sale would
decrease bank reserves
c. purchasing government bonds. This
purchase would decrease bank reserves
d. selling government bonds. This sale would
increase bank reserves

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