QUESTION 6 A central bank that desires to reduce the quantity of money will: a. a. Reduce the reserve requirements, reduce the discount rate, and sell the treasury securities in open market. a. Increase the reserve requirements, increase the discount rate, and purchase the treasury securities in open market. b. a. Increase the reserve requirements, reduce the discount rate, and sell the treasury securities in open market. Oc. a. Increase the reserve requirements, increase the discount rate, and sell the treasury securities in open market. Od.

QUESTION 6 A central bank that desires to reduce the quantity of money will: a. a. Reduce the reserve requirements, reduce the discount rate, and sell the treasury securities in open market. a. Increase the reserve requirements, increase the discount rate, and purchase the treasury securities in open market. b. a. Increase the reserve requirements, reduce the discount rate, and sell the treasury securities in open market. Oc. a. Increase the reserve requirements, increase the discount rate, and sell the treasury securities in open market. Od.

ECON MACRO

5th Edition

ISBN:9781337000529

Author:William A. McEachern

Publisher:William A. McEachern

Chapter14: Banking And The Money Supply

Section: Chapter Questions

Problem 3.4P

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Suppose the Fed conducts an open market sale by selling $10 million in Treasury bonds to Acme Bank. Sketch out the balance sheet changes that will occur as Acme restores its required reserves (10% of deposits) by reducing its loans. The initial balance sheet for Acme Bank contains the following information: Assets - reserves 30, bonds 50, and loans 250; Liabilities - deposits 300 and equity 30.
Suppose the Fed conducts an open market purchase by buying 10 million in Treasury bonds from Acme Bank. Sketch out the balance sheet changes that will occur as Acme converts the bond sale proceeds to new loans. The initial Acme bank balance sheet contains the following information: Assets - reserves 30, bonds 50, and loans 50; Liabilities - deposits 300 and equity 30.
Explain how to use the discount rate to expand the money supply.
Explain what would happen if banks were notified they had to increase their required reserves by one percentage point from, say, 9 to 10 of deposits. What would their options be to come up with the cash?