Consider an open market purchase by the Fed of $11 billion of Treasury bonds. What is the impact of the purchase on the bank from which the Fed bought the securities? The bank’s securities (Click to select) fall rise by $11 billion and its reserves (Click to select) fall rise by $11 billion. Compute the impact on M1 assuming that: (1) the required reserve ratio is 5 percent; (2) the bank does not wish to hold excess reserves; and (3) the public does not wish to hold currency. The simple deposit multiplier will be: .
Consider an open market purchase by the Fed of $11 billion of Treasury bonds. What is the impact of the purchase on the bank from which the Fed bought the securities? The bank’s securities (Click to select) fall rise by $11 billion and its reserves (Click to select) fall rise by $11 billion. Compute the impact on M1 assuming that: (1) the required reserve ratio is 5 percent; (2) the bank does not wish to hold excess reserves; and (3) the public does not wish to hold currency. The simple deposit multiplier will be: .
Chapter14: Banking And The Money Supply
Section: Chapter Questions
Problem 3.5P
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Consider an open market purchase by the Fed of $11 billion of Treasury bonds. What is the impact of the purchase on the bank from which the Fed bought the securities?
The bank’s securities (Click to select) fall rise by $11 billion and its reserves (Click to select) fall rise by $11 billion.
Compute the impact on M1 assuming that: (1) the
The simple deposit multiplier will be: .
The value of deposits (and M1) will (Click to select) rise fall by $ billion.
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