Suppose any money lent by a bank is deposited back in the banking system as a checkable
Question:
Suppose any money lent by a bank is deposited back in the banking system as a checkable deposit. The central bank reserve ratio requirement is 15%. The banking system does not keep the money as access reserves. Explain the effect of a $200 million open market purchase of US treasury bills by the FED on the value of checkable bank deposits. What is the size of the money multiplier? Now assume the public decided to withdraw cash 15% from the banking system, what is the value of the multiplier? The central bank is responsible for the monetary policy to correct market imperfection and stabilize the economy.
Explain how the central bank uses open market operation to correct a weak economy.
The Macro Economy Today
ISBN: 978-1259291821
14th edition
Authors: Bradley R. Schiller, Karen Gebhardt