If the Federal Reserve buys $100,000 worth of securities in the open

Homework 8

Question 1
If the Federal Reserve buys $100,000 worth of securities in the open market, then what happens next?

The monetary base will decrease by $100,000

The monetary base will not change

The monetary base will increase by $100,000

None of the above

Question 2
Suppose that the Federal Reserve purchases $10,000 worth of securities from the non-bank public. Then what happens next?

R decrease by $10,000 and MB rises by $10,000

C and R both decrease by $10,000, and MB falls by $10,000

C increases by $10,000 and the MB increases by $10,000

C increases by $10,000 and the MB falls by $10,000

Question 3
Using the simple deposit multiplier, find the amount of securities that the Federal  Reserve Bank needs to purchase in order to increase deposits by $80,000, if the required reserve ratio is 4%.

$3,200

$6,000

$8,000

$4,800

Question 4
With regard to the simple deposit multitplier model, if borrowers keep higher portions of their loans as cash instead of deposits, then this will

increase the multiplier effect

decrease the multiplier effect

not change the multiplier effect

none of the above

Question 5
Say that the Federal Reserve Bank purchases $6000 worth of securities from Bank A. If the resulting increase in deposits in the total economy is $200,000, then according to the simple deposit multiplier formula, what is the required reserve ratio?

1%

2%

3%

4%

Here’s the SOLUTION

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