Suppose that for every open-market operation in the amount of $1, money supply increases by $3, i.e., an open-market purchase of $1 will increase money supply by $3 and an open-market sale of $1 will reduce money supply by $3. This means that money multiplier is fixed and is equal to 3. The Fed's balance sheet is Federal Reserve Bank Assets Liabilities $ 900 Securities Gold Currency held by nonbank public Vault cash held by banks Reserve deposits Total liabilities $ 700 100 100 200 Total assets $1000 $1000 and the commercial banks' balance sheet is Consolidated Balance Sheet of Banks Assets Liabilities Vault cash $ 100 Deposits $3000 Reserve deposits 200 Loans 2700 Total assets $3000 Total liabilities $3000 If the Fed wants to increase money supply by 15%, then it has to buy government bonds in the amount of
Suppose that for every open-market operation in the amount of $1, money supply increases by $3, i.e., an open-market purchase of $1 will increase money supply by $3 and an open-market sale of $1 will reduce money supply by $3. This means that money multiplier is fixed and is equal to 3. The Fed's balance sheet is Federal Reserve Bank Assets Liabilities $ 900 Securities Gold Currency held by nonbank public Vault cash held by banks Reserve deposits Total liabilities $ 700 100 100 200 Total assets $1000 $1000 and the commercial banks' balance sheet is Consolidated Balance Sheet of Banks Assets Liabilities Vault cash $ 100 Deposits $3000 Reserve deposits 200 Loans 2700 Total assets $3000 Total liabilities $3000 If the Fed wants to increase money supply by 15%, then it has to buy government bonds in the amount of
Economics: Private and Public Choice (MindTap Course List)
16th Edition
ISBN:9781305506725
Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Chapter13: Money And The Banking System
Section: Chapter Questions
Problem 18CQ
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