How will the purchase of $100 million of government securities by the Federal Reserve change bank reserves and total checking account deposits in the banking system as a whole? Assume that banks do not hold any excess reserves, that households and
firms do not change the amount of currency they hold, and that the required reserve ratio is 20 percent.
Bank reserves will increase by $100 million when the seller of the bond deposits the $100 million in its checking account. Total checking account deposits in the banking system as a whole will increase by $500 million—the $100 million increase in reserves times the simple deposit multiplier of 5.
You might also like to view...
The crowding out effect is often associated with
A) a temporary increase in taxes. B) the reinforcing impact of state and local tax changes on federal tax changes. C) the impact of a tax rate increase when the aggregate supply function is horizontal. D) an increase in the interest rate caused by government borrowing.
Consumer’s surplus is the difference between the worth of a commodity to the consumer and the price the consumer pays for the commodity.
Answer the following statement true (T) or false (F)
Suppose that an increase in population increases demand in New Haven County's perfectly competitive market for auto repair. Which of the following is true in the short run?
a. Auto repair centers may be able to earn economic profit. b. Normal profits increase. c. The market supply curve of auto repair services shifts to the left. d. Either price or output is likely to increase, but it's impossible to say which. e. After firms have had time to adjust to the new equilibrium, the price of auto repair services will exceed the marginal cost.
Other things being equal, an increase in the price of a good leads to an increase in the amount produced. This is known as
A) the law of demand. B) the law of supply. C) ceteris paribus. D) equilibrium.