Question

Suppose a bank has $400 in reserves. The reserve requirement is 8% and the bank has...

  1. Suppose a bank has $400 in reserves. The reserve requirement is 8% and the bank has $5 of excess reserves. How much has been deposited in the bank?

    A.

    $4,937.50
    B.

    $4,995
    C.

    $5,000
    D.

    $5,062.50

  2. What is the most common method that the Fed uses to increase the money supply?

    A.

    Selling US Treasuries
    B.

    Buying US Treasuries
    C.

    Selling gold
    D.

    Buying gold
    E.

    Increasing the federal debt ceiling

  3. If the money multiplier is 3 and the Fed wants to increase the money supply by $900,000, what should it do?

    A.

    Make an open market purchase of $3
    B.

    Make an open market purchase of $300,000
    C.

    Make an open market purchase of $900,000
    D.

    Make an open market purchase of $2,700,000
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Homework Answers

Answer #1

1-required reserve=reserve-excess reserve

Required reserve=400-5=$395 billion.

We know that required reserve=reserve ratio×deposits

So deposit=required reserve/reserve ratio

Deposit=395/0.08=$4937.5

So option A is the correct statement.

2-most common method to increase the money supply is to buying US treasuries because as fed buy US treasury then in return fed give money and so that money flow increases.

So option B is the correct

3-open market purchase=900000/3=$300000

So option B is the correct.

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