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The Fed conducts a $10 million open-market purchase of government bonds. If the required reserve ratio is 10 percent, what is the largest possible increase in the money supply that could result? Explain. What is the smallest possible increase? Explain.

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Alice Sejake
Alice SejakeLv10
3 Apr 2021
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Related questions

• In terms of the demand for money, the interest rate is:

A) the price of borrowing money. B) the return on money that is saved for the future. C) the rate at which current consumption can be exchanged for future consumption. D) the opportunity cost of holding money.

• When the Fed conducts open market operations, the Fed buys and sells government securities to:

A) the private sector. B) foreign countries only. C) state and local government agencies only. D) the U.S. Treasury.

An open-market purchase of government bonds by the Fed results in ________ in bank reserves and ________ in the supply of money.

A) an increase; a decrease B) a decrease; a decrease C) an increase; an increase D) a decrease; an increase •

A decrease in the required reserve ratio:

A) will increase the money supply. B) will decrease the money supply. C) will not change the money supply. D) will decrease the discount rate.

Monetary Policy and the Federal Reserve System

DIRECTIONS: Fill in the blanks (1 point each):

The Federal Reserve System Action¦. Money Supply (rises, falls, remains unchanged)

Conducts an open market purchase: ____________________________________

Lowers the required-reserve ratio: ___________________________________

Raises the discount rate to a level higher

than the federal funds rate: ___________________________________

Conducts an open market sale: ___________________________________

Lowers the discount rate to a level

substantially lower than the

federal funds rate: _____________________________________

Raises the required reserve ratio: _____________________________________

The Federal Reserve System Action¦ In AD/AS Model, which curve shifts which

direction as a result of the following, in the SR?

Conducts an open market purchase: ______________________________________

Conducts an open market sale: _______________________________________

Lowers the required-reserve ratio: ______________________________________

Raises the required reserve ratio: __________________________________

Explain using a T-account if necessary:
If the Fed buys from Chase $30 million of government securities, the required reserve ratio is 10%, individuals do not hold currency, and bank does not hold excess reserves, will there be a maximum increase in the money supply by the banking system as the result of the Fed purchase?

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