action-takeQuiz&quiz; probGuid-ONAPCOA801010000003b167d50050000&ctx; susan.th OL
ID: 1115360 • Letter: A
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action-takeQuiz&quiz; probGuid-ONAPCOA801010000003b167d50050000&ctx; susan.th OLLABEC, UHC DATA ENRY3PM ADMIN D AETNA ADMIN . Pay ocity SHAREPOIN AaAa 3. The reserve requirement, open market operations, and the money supply Assume that banks do not hold excess reserves and that households do not hold currency-the only form of money is checkable deposits. Suppose the banking system has total reserves of $200 billion. Find the simple money multiplier and the money supply for each reserve requirement listed in the following table. Money Supply (Checkable Deposits) Reserve Requirement 10% 20% Simple Money Multiplier For a given level of reserves, a lower reserve requirement is associated with a money supply. Suppose the Federal Reserve (the Fed) wants to increase the money supply by $100 billion. Again, you can assume that banks do not hold excess reserves and that households do not hold arrency. If the reserve requirement is 20%, the Fed will use open-market operations to worth of U.S. government bonds Now, suppose that rather than immediately lending out all excess reserves, banks begin holding some excess reserves due to uncertain economic conditions. Specifically, in addition to the required reserves of 20%, banks hold an additional 5% of their deposits as reserves. This increase in the reserve ratio causes the money multiplier to Fed would need to billion. to Under these conditions, the worth of U.S. govenment bonds in order to increase the money supply by $100 Which of the following statements help to explain why, in the real world, the Fed cannot predisely control the money supply? Check all that apply. The Fed cannot prevent banks from lending out required reserves. ne Fed cannot control whether and to what extent banks hold exces$ reserves. Trie Fed cannot control the amount of money that households choose to hold as currency.Explanation / Answer
A lower level of reserve represent higher money multiplier and is associated with hogh money supply
When R=20%=0.2 and reserve multiplier=1/r=1/0.2=5 thus change in money supply=100 thus Fed will purchase open market operation of 20 billion(purchase of $20billion)
When excess ressrves os 5% then money multiplier decreases from 5 to 4 and fed need to purcahse securities of 25billion worth of govt. Bonds
All three are correct because Fed cant change any of them
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