Question

1- Assume a required reserve ratio behind demand deposits of 20% if the federal reseve purchases $15 million of U.S securities , bank reserves will

a: rise by $75 million

b: fall by $ 75 million

c: remain unchanged unless the Federal reserve purchses the securities from a commercial bank

d: rise by $15 million

e: none of the above

2- The opportuinity cost of holding money balances rather than other assets is

a: the rate of interest

b: the price level

c: foregone consumption

d: foregone liquidituy

3- In a gragh of the investment demand curve the effect of he feds selling of securities in its open market operations could best be represented by

a: an upward shift of the investment demand curves

b: a downward shift of the investment demand curves

c: a movment up the investment demand curve

d: a movement down the investment demand curve

Answer 1

1) e) none of the above . The required reserve ratio is on demand deposists and not securitries bought .

2) a: the rate of interest . If we hold money balances we lose the interest rate we could have earned from it .

3) a: an upward shift of the investment demand curves. Fed selling of securities in its open market operations , means that money supply falls in the economy . So the interest rate rises . Hence there is an upward shift of investment demand curve .