(11)A drawdown ___________ the supply of cash available to the direct clearers w
ID: 1135465 • Letter: #
Question
(11)A drawdown ___________ the supply of cash available to the direct clearers while a redeposit ____________it. Select one: a. decreases; increases b. increases; decreases c. decreases; decreases d. increases; increases (11)A drawdown ___________ the supply of cash available to the direct clearers while a redeposit ____________it. Select one: a. decreases; increases b. increases; decreases c. decreases; decreases d. increases; increases Select one: a. decreases; increases b. increases; decreases c. decreases; decreases d. increases; increasesExplanation / Answer
The Fed in order to correct any imbalances in the economy changes the money supply to influence aggregate demand. The fed in order to increase the money supply increases federal funds rate, discount rate, decreases reserve requirement, or conduct an open market purchase.
The Fed increases the money supply by initiating an open market purchase of government securities. To pay for the bond the Fed issues a check on itself. The seller of the bond deposits the check at his/her bank. The bank deposits the check at Fed as reserve credit. The Fed increases the bank’s reserve at the account held by the bank at Fed. Thus the reserve of the bank increases by the amount of the check. A fraction of this increase will be required reserve and the rest is excess reserve of the bank. The bank will loan out this excess reserve to its customers. This will inject new money into the economy. The customers will spend the new loan and boost up the aggregate demand in the economy.
The opposite is true when the central bank tries to decrease money supply. It sell bonds and receives checks that decreases reserves of the bank the check is drawn on. In this process the buyer or seller of the bond is called the direct clearers. The transfer of cash from bank vaults to cental bank account is called drawdown and the opposite transaction is caleed redeposit.
Then a drawdown decreases cash and redeposit increases the same.
Therefore, the correct option is: (a)
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