Suppose that for every open-market operation in the amount of $1, money supply increases by $3,...

 

Transcribed Image Text:

Suppose that for every open-market operation in the amount of $1, money supply increases by $3, i.e., an open-market purchase of $1 will increase money supply by $3 and an open-market sale of $1 will reduce money supply by $3. This means that money multiplier is fixed and is equal to 3. The Fed's balance sheet is Federal Reserve Bank Assets Liabilities Securities $900 $700 Gold Currency held by nonbank public Vault cash held by banks 100 100 Reserve deposits 200 Total assets $1000 Total liabilities $1000 and the commercial banks' balance sheet is Consolidated Balance Sheet of Banks Assets Liabilities Vault cash $100 Deposits $3000 Reserve deposits 200 Loans 2700 Total assets $3000 Total liabilities. $3000 If the Fed wants to increase money supply by 15%, then it has to buy government bonds in the amount of Note: Type in your answer rounded to two decimal places, Lo.. your answer must be of the form "999.99" I will not be able to fix correct answers that were entered incorrectly, such as "999.999" or "999,99" or "999". In case the last digit in the correct answer is zero, e.g.. "999.90" or "999.00", Blackboard may automatically delete it and you should not do anything about it. In case of percentages, do not type in the percentage symbol "%" If your answer is a negative number, type a dash in front of your answer, L., 999.99" 185 Suppose that for every open-market operation in the amount of $1, money supply increases by $3, i.e., an open-market purchase of $1 will increase money supply by $3 and an open-market sale of $1 will reduce money supply by $3. This means that money multiplier is fixed and is equal to 3. The Fed's balance sheet is Federal Reserve Bank Assets Liabilities Securities $900 $700 Gold Currency held by nonbank public Vault cash held by banks 100 100 Reserve deposits 200 Total assets $1000 Total liabilities $1000 and the commercial banks' balance sheet is Consolidated Balance Sheet of Banks Assets Liabilities Vault cash $100 Deposits $3000 Reserve deposits 200 Loans 2700 Total assets $3000 Total liabilities. $3000 If the Fed wants to increase money supply by 15%, then it has to buy government bonds in the amount of Note: Type in your answer rounded to two decimal places, Lo.. your answer must be of the form "999.99" I will not be able to fix correct answers that were entered incorrectly, such as "999.999" or "999,99" or "999". In case the last digit in the correct answer is zero, e.g.. "999.90" or "999.00", Blackboard may automatically delete it and you should not do anything about it. In case of percentages, do not type in the percentage symbol "%" If your answer is a negative number, type a dash in front of your answer, L., 999.99" 185

Answer rating: 100% (QA)

Money supply Currency held by nonbank public Dep... View the full answer