Question

In: Economics

QUESTION 1 If the Board of Governors of the Federal Reserve increases the reserve requirement then...

QUESTION 1

If the Board of Governors of the Federal Reserve increases the reserve requirement then the money supply will decline.

True

False

QUESTION 2

If the required reserve ratio is equal to 10 percent, a single bank can increase its loans up to a maximum amount equal to

10 times its excess reserves.

10 percent of its excess reserves.

its excess reserves.

its total reserves.

QUESTION 3

In the simple deposit expansion model, an expansion in checkable deposits of $1,000 when the required reserve ratio is equal to 10 percent implies that the Fed

sold $1,000 in government bonds.

sold $100 in government bonds.

purchased $1000 in government bonds.

purchased $100 in government bonds.

QUESTION 4

  1. Purchases and sales of government securities by the Federal Reserve are called

    federal fund transfers.

    discount loans.

    open market operations.

    swap transactions.

QUESTION 5

Permanent open market operations of the Federal Reserve are executed by the Federal Reserve Bank of New York.  What types of securities does the Federal Reserve buy or sell in permanent open market operations?

Corporate Debt

Debt issued by FNMA and FHLMC

Treasury Securities, Mortgage-Backed Securities, Debt issued by FNMA and FHLMC, The S&P Corporate Debt

Mortgage Backed Securities, Debt issued by FNMA and FHLMC and Treasury Securities.

Solutions

Expert Solution

1)If the Board of Governors of the Federal Reserve increases the reserve requirement then the money supply will decline : true because then the banks will have to hold more funds to themselves and they would be loaning out less leading to a fewer amount of money in the hands of the people implying a fall in the money supply

2)If the required reserve ratio is equal to 10 percent, a single bank can increase its loans up to a maximum amount equal to its excess reserves because that is the amount of reserves that are left after keeping the required amount that is the 10% of total reserves

3)In the simple deposit expansion model, an expansion in checkable deposits of $1,000 when the required reserve ratio is equal to 10 percent implies that the Fed purchases 100 $ in government bonds because 10% of 1000 is 100 and cheakable deposits mean an asset for the fed

4)Purchases and sales of government securities by the Federal Reserve are called open market operations


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