In: Finance
1-The FOMC has instructed the FRBNY Trading Desk to purchase
$430 million in U.S. Treasury securities. The Federal Reserve has
currently set the reserve requirement at 10 percent of transaction
deposits. Assume U.S. banks withdraw all excess reserves and give
out loans.
a. Assume also that borrowers eventually return
all of these funds to their banks in the form of transaction
deposits. What is the full effect of this purchase on bank deposits
and the money supply?
b. What is the full effect of this purchase on
bank deposits and the money supply if borrowers return only 90
percent of these funds to their banks in the form of transaction
deposits?
2- The FOMC has instructed the FRBNY Trading Desk to purchase
$660 million in U.S. Treasury securities. The Federal Reserve has
currently set the reserve requirement at 6 percent of transaction
deposits. Assume U.S. banks withdraw all excess reserves and give
out loans.
a. Assume also that borrowers eventually return
all of these funds to their banks in the form of transaction
deposits. What is the full effect of this purchase on bank deposits
and the money supply?
b. What is the full effect of this purchase on
bank deposits and the money supply if borrowers return only 94
percent of these funds to their banks in the form of transaction
deposits?