Suppose banks hold no excess reserves, households and firms do not change the amount of currency they hold, and the required reserve ratio is 25%
If the Federal Reserve purchases $1 million in treasury securities, what will be the changes in bank reserves and total checking account deposits in the whole banking system?
Bank reserves will increase by $1 million when the seller of the Treasury security deposits the $1 million in her checking account. Total checking account deposits in the whole banking system will increase by the original $1 million deposit times the deposit multiplier of 4, or $4 million.
You might also like to view...
Explain why an external benefit leads to an under-allocation of resources to the production of a good
What will be an ideal response?
If a price ceiling of $8 were placed in the market in the graph shown:
A. an excess supply of 7 would occur.
B. an excess supply of 15 would occur.
C. an excess supply of 23 would occur.
D. None of these is true.
How does production generate income?
What will be an ideal response?
Over extended periods of time, population growth
a. has no effect on the standard of living. b. has uncertain effects on the standard of living. c. clearly raises the standard of living. d. clearly lowers the standard of living.