bank, the monetary Da3 (10) When the Federal Reserve extends a discount loan to
ID: 1128609 • Letter: B
Question
bank, the monetary Da3 (10) When the Federal Reserve extends a discount loan to a and reserves A) increases; increase B) increases; remain unchanged C) remains unchanged; decrease D) remains unchanged; increase (11) In the simple deposit bank that previously potentially increase by expansion model, if the Fed extends a $100 discount loan to a had no excess reserves, deposits in the banking system can A) $10 B) $100 C) $100 times the reciprocal of the required reserve ratio D) $100 times the required reserve ratio. (12) Everything else held constant, a decrease in the required reserve ratio on checkable deposits causes the M1 money multiplier to to _ and the money supply A) decrease; decrease B) increase; decrease C) decrease; increase D) increase; increaseExplanation / Answer
10) A) Increases, Increase
when the federal reserve extends a discount loan to bank, it leads to a reduction in Required Reserve Ratio, which will further reduce the bank rate. It will tend to a increse in taking loan, which will further results increase in monetary base and reserves.
11) B) $100
$100 discount loan to a bank by federal , with no previous excess reserve, will eventually increase the deposit in banking system by $100,as there will also exist a discount in bank loan of $100.
12) D) Increase, Increase
A decrease in the required reserve ratio on checkable deposit causes decrease in Bank rate. In this case, the tendency of taking loans will increase. This will lead to a increase in money supply and money multiplier.
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