Assume that the non-bank public holds no physical currency (and banks hold no excess reserves). After...

Assume that the non-bank public holds no physical currency (and banks hold no excess reserves). After the banking system has fully adjusted to the initial deposit what will be the total impact of the open market purchase on the money supply? Explain your answer (including any relevant calculations

Solutions

Expert Solution

In open market purchase the Fed buys and sells government securities in the open market. The Fed buys government bonds if it wants to increase the money supply.The dealers of securities sell the bonds with cash which increases the overall money supply in te economy.In order to regulate the supply of money that is on reserve in the US banks , the Fed buys and sells securities.The banks can then loan out to consumers and business firms.

Rahul Sunny answered 1 year ago

Next > < Previous

Related Solutions

Assume that no banks hold excess reserves and the public holds no currency (which implies that...

Assume that no banks hold excess reserves and the public holds no currency (which implies that ER = C = 0). If a bank sells a $100,000 security to the FED, explain what happens to this bank (Bank A) and two additional steps (or two additional banks, Bank B and Bank C) in the deposit expansion process assuming a 10% reserve requirement. Put differently, what will be the change in deposits for the first bank (ΔDA), the second bank (ΔDB),...

Assume that banks do not hold excess reserves and that households do not hold currency, so...

Assume that banks do not hold excess reserves and that households do not hold currency, so the only form of money is demand deposits. To simplify the analysis, suppose the banking system has total reserves of $300. Determine the money multiplier and the money supply for each reserve requirement listed in the following table. Reserve Requirement Simple Money Multiplier Money Supply (Percent) (Dollars) 20 ______ _____ 10 ______ ______ A higher reserve requirement is associated with a (smaller or larger)...

Assume that banks do not hold excess reserves and that households do not hold currency, so...

Assume that banks do not hold excess reserves and that households do not hold currency, so the only form of money is demand deposits. To simplify the analysis, suppose the banking system has total reserves of $500. Determine the money multiplier and the money supply for each reserve requirement listed in the following table. Reserve Requirement Simple Money Multiplier Money Supply (Percent) (Dollars) 25 10 A lower reserve requirement is associated with a money supply. Suppose...

Assume that banks do not hold excess reserves and that households do not hold currency, so...

Assume that banks do not hold excess reserves and that households do not hold currency, so the only form of money is demand deposits. To simplify the analysis, suppose the banking system has total reserves of $500. Determine the money multiplier and the money supply for each reserve requirement listed in the following table. Reserve Requirement Simple Money Multiplier Money Supply (Percent) (Dollars) 5 10 A lower reserve requirement is associated with a money supply. Suppose...

Assume that banks aim to hold no excess reserves. The AAA bank responds to the change...

Assume that banks aim to hold no excess reserves. The AAA bank responds to the change in its reserve position in part (b) by maximizing its loan portfolio. Under this assumption, show AAA’s T-Account after it has fully adjusted to the change in its reserve position. Explain what actions occurred that caused the balance sheet to change

Assume that banks do not hold excess reserves and that households do not hold currency, so the only form of money is checkable deposits.

6. The reserve requirement, open market operations, and the money supply Assume that banks do not hold excess reserves and that households do not hold currency, so the only form of money is checkable deposits. To simplify the analysis, suppose the banking system has total reserves of $400. Determine the money multiplier and the money supply for each reserve requirement listed in the following table A higher reserve requirement is associated with a _______ money supply.Suppose the Federal Reserve wants to increase...

For Questions 7 – 11, assume that no banks wish to hold excess reserves and that...

For Questions 7 – 11, assume that no banks wish to hold excess reserves and that people prefer to hold all of their money in checkable deposits. Additionally, assume that banks are holding zero excess reserves when the Fed first undertakes any of the described actions.For ease in submitting answers you may use "+" in place of "increase," "-" in place of "decrease," and "0" in place of "stays the same." (Don't use the quotation marks.) 9. Suppose the current...

If a bank that desires to hold no excess reserves and has just enough reserves...

If a bank that desires to hold no excess reserves and has just enough reserves to meet the required reserve ratio of 15 percent receives a deposit of $600, it has a Selected Answer: c. $510 increase in excess reserves and a $90 increase in required reserves. Answers: a. $600 increase in required reserves and no increase in excess reserves. b. $600 increase in excess reserves and no increase in required reserves. c. $510 increase in excess...

) Suppose commercial banks in Botswana hold two billion pula (P2billion) in excess reserves. Assume that...

) Suppose commercial banks in Botswana hold two billion pula (P2billion) in excess reserves. Assume that there is no cash in hand and that the required reserve ratio is 10%. What is the maximum amount of new deposits that can be created by the banking system? iv) Distinguish between demand-pull inflation and cost-push inflation. v) Discuss the economic costs of unemployment vi) Briefly discuss the functions of the bank of Botswana vii) Distinguish between frictional unemployment and demand deficient unemployment...

1.If bank reserves are 200, the public holds 500 in currency, and the desired reserve-deposit ratio...

1.If bank reserves are 200, the public holds 500 in currency, and the desired reserve-deposit ratio is 0.20, the money supply is ? 2. If consumption increases by $8 when disposable income increases by $16, the marginal propensity to consume (mpc) equals: 3. Suppose there is 2% frictional unemployment, 3% structural unemployment, and -2% cyclical unemployment, then the natural rate of unemployment equals: 4. In Macroland there is $6,000,000 in currency. The public holds half of the currency and banks...

Subjects