The reserve ratio is 20 percent and all loan proceeds are deposited in transactions accounts. A bond dealer has $100 million in deposits, $8 million in vault cash, and $7 million in deposits at the Fed. The Fed sells $1 million in securities to the bond dealer, who subsequently deposits the $1 million into a bank. As a result of this transaction alone
A. the money supply rises by $1 million, total reserves fall by $800,000.
B. the money supply rises by $1 million, but reserves do not change.
C. the money supply falls by $1 million and total reserves fall by $1 million.
D. the money supply falls by $1 million and total reserves rise by $1 million.
Answer: C
You might also like to view...
Refer to Figure 3.1. If Homer confesses to the crime and Marge does not, what is Homer's payout?
A) 1 year B) 2 years C) 7 years D) 15 years
Refer to Figure 10.1. If Daisy contributes to the lighting, Bo should
A) contribute if Luke contributes. B) not contribute only if Luke does not contribute. C) not contribute regardless of what Luke decides to do. D) contribute if Luke does not contribute.
When a consumer allocates her limited budgetary resources to maximize her well-being, ____ is achieved
a. the elimination of scarcity b. market equilibrium c. consumer equilibrium d. the maximization of marginal utility
Automatic stabilizers in the United States are: a. changes in government transfer payments and tax revenues that vary automatically and inversely to business cycle changes. b. controlled by the Federal Reserve System to help control the business cycle
c. able to completely eliminate all the lag problems associated with fiscal policy. d. none of the above.