"A bank can only use its excess reserves to make loans, while required reserves can only be used to buy U.S. government securities." Explain whether the previous statement is correct or incorrect
What will be an ideal response?
The statement is incorrect on two dimensions. First, a bank can use excess reserves to buy government securities as well as make loans. Second, a bank is not allowed to use its required reserve to buy U.S. government securities. Required reserves must be kept in the form of reserves, which are either reserve deposits the bank has made at the Federal Reserve or cash in the bank's vault.
You might also like to view...
Why do purely technological theories have difficulty explaining recessions in which real GDP falls?
What will be an ideal response?
If the Fed decreases the money supply, gross domestic product: a. increases by the same amount as the increase in the interest rate
b. decreases by a greater amount than the increase in the interest rate because of the multiplier. c. decreases by the same amount as the decrease in investment. d. decreases by a greater amount than the decrease in investment because of the multiplier. e. decreases by a lesser amount than the decrease in investment because of the multiplier.
Disney earned a negative economic profit in 2006
Indicate whether the statement is true or false
The long-run Phillips curve assumes that every unemployed worker who is looking for a job has a constant reservation wage
a. True b. False Indicate whether the statement is true or false