The Federal Reserve buys $5000 in bonds from Spilkin Enterprises (a private company), which then deposits...

 

Transcribed Image Text:

The Federal Reserve buys $5000 in bonds from Spilkin Enterprises (a private company), which then deposits the money in a checking account at The Bank of Pollock. a. As a result of the Federal Reserve's action, what is the change in the money supply if the required reserve ratio is 100 percent? b. If the required reserve ratio is reduced to 10 percent, calculate the following. i. The maximum amount this bank could lend from this deposit ii. The maximum increase in the total money supply from the Federal Reserve's purchase of bonds c. If banks keep some of the deposit as excess reserves, how will this influence the change in the money supply that was determined in part (b)(ii)? Explain. d. If the public decides to hold some money in the form of currency rather than in demand deposits, how will this influence the change in the money supply that was determined in part (b)(ii)? Explain. The Federal Reserve buys $5000 in bonds from Spilkin Enterprises (a private company), which then deposits the money in a checking account at The Bank of Pollock. a. As a result of the Federal Reserve's action, what is the change in the money supply if the required reserve ratio is 100 percent? b. If the required reserve ratio is reduced to 10 percent, calculate the following. i. The maximum amount this bank could lend from this deposit ii. The maximum increase in the total money supply from the Federal Reserve's purchase of bonds c. If banks keep some of the deposit as excess reserves, how will this influence the change in the money supply that was determined in part (b)(ii)? Explain. d. If the public decides to hold some money in the form of currency rather than in demand deposits, how will this influence the change in the money supply that was determined in part (b)(ii)? Explain.

Answer rating: 100% (QA)

a Change in Money Supply with a 100 Required Reserve Ratio If the required reserve ratio is 100 bank... View the full answer