1. Assume that $100 drops from the beak of a seagull. You pick it up and immediately deposit it in your checking account. If the bank keeps 5% of deposits in required reserves:

   1. How much money can this bank now lend out?

   2. Calculate the simple money multiplier: ______________

   3. Using the money multiplier, how much money will eventually be created in total from this $100?

2. What is the role of financial intermediaries? What is the difference between stocks and bonds? Describe how interest rates are determined in the bond market.

3. “The effects of open market operations are like a stone cast in a pond.” Describe the effect on bank reserves, interest rates, investment, and aggregate demand (GDP) and the price level when the Federal Reserve sells bonds on the open market.

Answer rating: 100% (QA)

Answers 1 Money Multiplier and Creation Simple Money Multiplier 1 Required Reserve Ratio 1 005 20 To... View the full answer