What is the required reserve ratio? 40% 25% 5% 10% Suppose that the Federal Reserve (the "Fed") buys $4 million of bonds from a bond dealer, who immediately deposits the funds in her checking account. What is the initial impact of this transaction? O The banking system's holdings of securities fall by $4 million, and the banking system's total reserves rise by $4 million. O Checkable deposits rise by $4 million, and the banking system's total reserves rise by $4 million. The banking system's holdings of securities rise by $4 million, and the banking system's total reserves fall by $4 million. Checkable deposits rise by $4 million, and the banking system's holdings of securities rise by $4 million. increase/decrease As a result of the Fed's purchase of $4 million of securities, checkable deposits in the banking system can potentially by as muc
What is the required reserve ratio? 40% 25% 5% 10% Suppose that the Federal Reserve (the "Fed") buys $4 million of bonds from a bond dealer, who immediately deposits the funds in her checking account. What is the initial impact of this transaction? O The banking system's holdings of securities fall by $4 million, and the banking system's total reserves rise by $4 million. O Checkable deposits rise by $4 million, and the banking system's total reserves rise by $4 million. The banking system's holdings of securities rise by $4 million, and the banking system's total reserves fall by $4 million. Checkable deposits rise by $4 million, and the banking system's holdings of securities rise by $4 million. increase/decrease As a result of the Fed's purchase of $4 million of securities, checkable deposits in the banking system can potentially by as muc
Chapter14: Banking And The Money Supply
Section: Chapter Questions
Problem 2.3P
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Transcribed Image Text:What is the required reserve ratio?
O
O
O
O
40%
Suppose that the Federal Reserve (the "Fed") buys $4 million of bonds from a bond dealer, who immediately deposits the funds in her checking
account. What is the initial impact of this transaction?
O
25%
5%
10%
The banking system's holdings of securities fall by $4 million, and the banking system's total reserves rise by $4 million.
deposits rise by $4 million, and the banking system's total reserves rise by $4 million.
The banking system's holdings of securities rise by $4 million, and the banking system's total reserves fall by $4 million.
Checkable deposits rise by $4 million, and the banking system's holdings of securities rise by $4 million.
Checkable
increase/decrease
As a result of the Fed's purchase of $4 million of securities, checkable deposits in the banking system can potentially
by as much as
Transcribed Image Text:4. Working through an open-market operation
Assume that the following balance sheet portrays the state of the banking system. The banks currently have no excess reserves.
Assets
(Billions of Dollars)
Total reserves 5 Checkable deposits
25
20
50
Loans
Securities
Total
O
What is the required reserve ratio?
40%
25%
Liabilities and Net Worth
5%
10%
Total
50
50
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