If the Fed buys government securities from commercial banks in the open market:
A. The Fed gives the securities to the commercial banks and increases the banks' reserves
B. The Fed gives the securities to the commercial banks decreases the banks' reserves
C. Commercial banks give the securities to the Fed, and the Fed increases the banks' reserves
D. Commercial banks give the securities to the Fed, and the Fed decreases the banks' reserves
C. Commercial banks give the securities to the Fed, and the Fed increases the banks' reserves
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Recent financial turmoil has caused many people to increase saving and to prefer assets that are perceived to be relatively safe and liquid. What are the likely effects on M1 and M2?
What will be an ideal response?
A characteristic of an oligopoly is:
a. mutual interdependence in pricing decisions. b. independent pricing decisions. c. lack of control over prices. d. none of these.
Which of the following is missing from the circular flow model depicted in the textbook?
a. businesses b. factors of production c. banks d. what households spend their money on e. goods and services
The reserve requirement is 4 percent, banks hold no excess reserves and people hold no currency. If the Fed sells $10,000 worth of bonds, what happens to the money supply?
a. it increases by $250,000 b. it increases by $200,000 c. it decreases by $200,000 d. it decreases by $250,000