B. Answer the following three multiple choice questions and explain why 1. Suppo

ID: 1187471 • Letter: B

Question

B. Answer the following three multiple choice questions and explain why

1. Suppose that in a given week discount loans increased by $700, Treasury holdings of cash rise by $300,

the Treasury's account at the Fed falls by $1,500, and the float increases by $200. The net impact of

these changes will cause the monetary base to

a. fall by $300

b. fall by $700

c. rise by $1,900

d. rise by $2,100

2. Suppose other assets of the Fed increase by $200 million and Treasury deposits at the Fed decrease by

$500 million. Assuming money supply multiplier (m) is 1.2, the net effect on the money supply (M1)

due to above changes in the monetary base is that money supply

a. decreases by $300 million

b. decreases by $700 million

c. increases by $360 million

d. increases by $840 million

3. Bank reserves (R) may be written as

a. R = Fb + Cb

b. R = B - C

c. both (a) and (b) are correct

d. None of the above is correct

1.B

2.C

3.C

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