2. For every question, please write down each main step before you obtain the fi

Question

2. For every question, please write down each main step before you obtain the final answer. Correct final answer with incorrect related work (calculation) or without any work may receive 0 point. On the contrary, incorrect final answer with correct related work (calculation) will receive partial credits.

Question 2 – Effect of Deposit Increase [4 points]: Through its open market operations, the Federal Reserve recently increased deposits at financial institutions by $80 billion. If the reserve requirement for all deposits is 8 percent, what is the maximum effect that the Fed’s actions can have on total deposits? (Hint: You first need to figure out the change in excess reserve, given the $80 billion increase in deposits at financial institutions.)

Explanation / Answer

Maximum Change in deposits = Excess Reserves/ Reserve Requirements Maximum Change in deposits = $80 billion/8% $1,000.00 Billion $1000 Billion Increase

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