Assume the Central Bank buys $400 K in US Treasury Bonds from corporations and the households. Also assume

Assume the Central Bank buys $400 K in US Treasury Bonds from corporations and the households. Also assume that the required ratio is .15 and the currency drain/currency ratio (how much people like to hold in cash rather than in their banks) is .12, then how much did the money supply increase or decrease? (hint - keep no more than 3 decimal places in your money multiplier and select the answer that comes closest)

Expert Solution

Given,

Amount of treasury bonds purchased = $400K or $400,000

Required ratio (i.e. reserve ratio) = 0.15

Currency drain (or currency ratio) = 0.12

The value of treasury bonds purchased by the central bank from the corporations and households will increase the money supply as the corporations and households will receive money in exchange for bonds.

The reserve ratio is the percentage of deposits of the bank that is required to keep in reserve rather than lend to borrowers.

The currency drain ratio is already explained in the question.

Money multiplier:

Increase in money supply:

The money supply will increase by 1,659,200.

Junaid answered 2 years ago

An open market sale of US Treasury bonds by the central bank will ________ credit conditions...

An open market sale of US Treasury bonds by the central bank will ________ credit conditions for private firms. A. ease B. restrict C. not change

The Danish Central Bank buys bonds from the Eurozone, e.g. German government bonds. How do the...

The Danish Central Bank buys bonds from the Eurozone, e.g. German government bonds. How do the spot market for Euros, the forward market for Euros, the loanable funds market for Euros, and the loanable funds market for Danish Krones graphically look like? What happens to supply of and demand for these currencies in the foreign exchange market?

Which of these actions will increase AD? Indicate Yes or No.The central bank buys bonds...

Which of these actions will increase AD? Indicate Yes or No.The central bank buys bonds from private banks. ________The central bank increases the money supply._______The central bank increases the required reserve ratio. _________The central bank sells bonds on the open market. _________The central bank uses open market operations to conduct expansionary monetary policy ______.The central bank decreases the discount rate. ___________

On Jan 1 ’07 SSS buys 100 US Treasury Bonds (face value $1000 each) for the...

On Jan 1 ’07 SSS buys 100 US Treasury Bonds (face value $1000 each) for the Trading Portfolio. The bonds carry an annual interest coupon of 4% paid semiannually Jan 1 and July 1. Journalize the purchase. On July 1 the bonds pay interest. Journalize the receipt of the interest payment. On Aug 1, SSS sells 50 of the bonds at 98 On December 31 SSS makes an adjusting entry for accrual of interest to be received January 1 2008....

Which of the following is TRUE when the central bank buys bonds? Money supply decreases Money...

Which of the following is TRUE when the central bank buys bonds? Money supply decreases Money supply increases Interest rates increase Money multiplier increases

Illustrate the following situations using supply and demand curves for money:a)The Central Bank buys bonds in...

Illustrate the following situations using supply and demand curves for money:a)The Central Bank buys bonds in the open market during a recession.b)During a period of rapid inflation, the Central Bank increases the reserve requirement.c)The Central Bank acts to hold interest rates constant during a period of high inflation.d)During a period of no growth in GDP and zero inflation, the Central Bank lowers the discount rate.e)During a period of rapid real growth of GDP, the Central Bank acts to increase the...

11. When the Bank of Canada buys bonds from a chartered bank, chartered bank reserves A)...

11. When the Bank of Canada buys bonds from a chartered bank, chartered bank reserves A) decrease and chartered banks make additional loans. B) increase and chartered banks reduce loans. C) decrease and chartered banks reduce loans. D) decrease and interest rates fall. E) increase and chartered banks make additional loans. 12. If Canadian interest rates rise, the value of the Canadian dollar ________ and net exports ________. A) appreciates; increase B) appreciates; decrease C) depreciates; increase D) depreciates; decrease...

Assume that the Bank of England decided to reduce its purchases of U.S. treasury bonds and...

Assume that the Bank of England decided to reduce its purchases of U.S. treasury bonds and instead held more dollars on deposit at the Fed. How this will affect the monetary base? What would be the appropriate monetary policy action to offset such a change?

a) Draw the T-accounts for Fred’s Bank if the FED buys a $20,000 treasury security from...

a) Draw the T-accounts for Fred’s Bank if the FED buys a $20,000 treasury security from Fred and Fred puts all the money he gets for it in the bank. Assume the reserve requirement set by the FED is 8%. (1 point) b) Economist A claims that this will result in a change in the money supply of $250,000. Explain how this is possible. (1 point) c) Economist B claims that the data shows the money supply only went up...

3. Assume that the liquidity of corporate bonds improves a little bit, relative to US Treasury...

3. Assume that the liquidity of corporate bonds improves a little bit, relative to US Treasury bonds. Given this, we would expect that the yield on US Treasury bonds will _____ and the yield on corporate bonds will _____. Group of answer choices rise; rise rise; fall fall; rise fall; fall 4. Analysts predict that short-term interest rates over the next 4 years will be as follows: 5%, 8.5%, 12%, and 1%, respectively. According to expectations theory, the yield on...

Question