Question 3 -complete the following sentence The Fed sells government securities

Question

Question 3 -complete the following sentence The Fed sells government securities worth S100 million to Bank of America. If the required reserve ratio is currently 0.12 and Bank of America doesn't hold excess reserves, the stock of money in the economy will chan _million. Round the number to two decimal places. Ifyou think that the stock of money decreases, include a negative sign in answer Question 4 - complete the following sentence Assume that the required reserve ratio is 25% and banks don't hold excess reserves. If the Central Bank wants to increase the stock of money in the economy by $20 billion, it should [buy/sell] government bonds worth S billion. Question 5 -complete the following sentence. Note that there are two correct answers. You need to select both answers to get full marks. An open market sale by the Fed leads to an increase in the number of banks. an immediate change in aggregate supply a reduction in the federal funds rate. a shift in the demand curve for reserves. a decrease in consumption an increase in investment a decrease in the stock of money a decrease in the discount rate

Explanation / Answer

Question 3: 88 Million

Question 4: Buy, 27 Billion [27 Billion - 25% of 27 Billion = 20Billion].

Question 5: A decrease in Consumption, A decrease in the stock of money.

An oen market sale by the Fed leads to reduction in the stock of money in the economy and thus leads to a reduction in the level of consumption.

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