**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%