Suppose the money supply (as measured by deposits) is currently $250 billion. Th

Question

Suppose the money supply (as measured by deposits) is currently $250 billion. The reserve requirement is 20%. Bank hold $50 billion in reserves, so there are no excess reserves.
The federal reserve ("the fed") wants to increase the money supply by $25 billion, to $275 billion. It could do this through open market operations or by changing the reserve requirement. Assume for this question that you can use the deposit expansion multiplier.
1. If the fed wants to increase the money supply using open market operations it should ___(buy/sell) _____worth of U.S government bonds. A. 5.0 billion B. $275 billion C. $50 billion D. $200 billion
2. Banks, as financial intermediaries, create value for depositors such as Yvette by doing which of the following? CHECK ALL THAT APPLY. A. Create networks B. Keep credit rates low pay interest
Match the correct motive for holding money to the following definitions A. Transactions demand for money B. Precautionary demand for money C. Speculative demand for money
3. The stock of money people hold to pay unpredictable expenses
4. The stock of money people hold to pay everyday predictable expenses
5. The stock of money people hold to take advantage of future changes in the price of non money financial assets
Identify the motive for holding money in the following scenario.
6. Brain recently moved from commission based sales job Suppose the money supply (as measured by deposits) is currently $250 billion. The reserve requirement is 20%. Bank hold $50 billion in reserves, so there are no excess reserves.
The federal reserve ("the fed") wants to increase the money supply by $25 billion, to $275 billion. It could do this through open market operations or by changing the reserve requirement. Assume for this question that you can use the deposit expansion multiplier.
1. If the fed wants to increase the money supply using open market operations it should ___(buy/sell) _____worth of U.S government bonds. A. 5.0 billion B. $275 billion C. $50 billion D. $200 billion
2. Banks, as financial intermediaries, create value for depositors such as Yvette by doing which of the following? CHECK ALL THAT APPLY. A. Create networks B. Keep credit rates low pay interest
Match the correct motive for holding money to the following definitions A. Transactions demand for money B. Precautionary demand for money C. Speculative demand for money
3. The stock of money people hold to pay unpredictable expenses
4. The stock of money people hold to pay everyday predictable expenses
5. The stock of money people hold to take advantage of future changes in the price of non money financial assets
Identify the motive for holding money in the following scenario.
6. Brain recently moved from commission based sales job
The federal reserve ("the fed") wants to increase the money supply by $25 billion, to $275 billion. It could do this through open market operations or by changing the reserve requirement. Assume for this question that you can use the deposit expansion multiplier.
1. If the fed wants to increase the money supply using open market operations it should ___(buy/sell) _____worth of U.S government bonds. A. 5.0 billion B. $275 billion C. $50 billion D. $200 billion
2. Banks, as financial intermediaries, create value for depositors such as Yvette by doing which of the following? CHECK ALL THAT APPLY. A. Create networks B. Keep credit rates low pay interest
Match the correct motive for holding money to the following definitions A. Transactions demand for money B. Precautionary demand for money C. Speculative demand for money
3. The stock of money people hold to pay unpredictable expenses
4. The stock of money people hold to pay everyday predictable expenses
5. The stock of money people hold to take advantage of future changes in the price of non money financial assets
Identify the motive for holding money in the following scenario.
6. Brain recently moved from commission based sales job

Explanation / Answer

Ans.

1 (A) $5 billion. Since money multiplier (1/RR) = (1/0.20) = 5, then money supply will rise by $5 billion, then only money supply rises by $25 billion. The fed should BUY govt bonds from public.

2. A and B

3. Transactions demand for money -  The stock of money people hold to pay everyday predictable expenses.

Precautionary demand for money -The stock of money people hold to pay unpredictable expenses

Speculative demand for money -The stock of money people hold to take advantage of future changes in the price of non money financial assets.

Related Questions

Navigate

• Browse (All)
• Browse S
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.