Suppose the Fed conducts an open market sale of $50 million in government securities. If the required reserve ratio is 20%, what is the maximum change in the money supply? Assume that banks try not to hold excess reserves and there is no currency withdrawal from the banking system.

A) maximum increase in money supply = $250 million
B) maximum decrease in money supply = $250 million
C) maximum increase in money supply = $50 million
D) maximum decrease in money supply = $50 million


Ans: B) maximum decrease in money supply = $250 million

Economics

You might also like to view...

Refer to Figure 12-9. At price P2, the firm would

A) lose an amount more than fixed cost. B) break even. C) lose an amount less than fixed cost. D) lose an amount equal to its fixed cost.

Economics

Fiat money

a. has no intrinsic value. b. is backed by gold. c. is a medium of exchange but not a unit of account. d. is any close substitute for currency such as checkable deposits.

Economics

By December 2009, the recession that began in December 2007:

A. had shifted 2 million people out of TANF and into the unemployment compensation system. B. doubled the number of people on welfare. C. raised the number of TANF recipients from 3.9 million to about 4.4 million. D. raised the number of TANF recipients to about 5 percent of the population.

Economics

When a corporation uses profits to pay for the purchase of new capital equipment, this is known as

A. dividend. B. a coupon payment. C. reinvestment. D. collusion.

Economics