The reserve ratio is 20 percent. The Fed buys $1 million in government securities from a bond dealer by transmitting the funds to the dealer's deposit account at Bank A. Bank A makes the maximum loan possible to a construction company, which buys materials with the loan. The check is deposited in Bank B, which loans out all it can to a car dealership. To this point, the money supply has increased by
A. $3 million.
B. $1 million.
C. $1.8 million.
D. $2.44 million.
Answer: D
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The transactions demand for money exists because households
A) do not like the fact that money is a liquid asset. B) must save for unexpected emergencies. C) are insensitive to interest rate changes. D) do not receive their incomes at the same time they wish to make purchases.
If price equals average total cost at the profit-maximizing output level, then in the short run,
a. profit is positive b. profit is negative c. the firm will go out of business d. the firm will earn zero profit e. the firm's supply curve is horizontal
Someone in Germany has just ordered a U.S. car to be exported to Germany. In the U.S. balance of payments, this purchase is a(n)
A) accounting identity. B) special draw. C) surplus item. D) deficit item.
Which of the following is NOT a reason why people are motivated to hold money?
A. asset demand B. transactions demand C. liability demand D. precautionary demand