Econ 3313 Unit 2
During the holiday season when the public's holdings of currency increase, what defensive open market operations typically occur?
A defensive open market purchase.
Which of the following players can affect the money supply by its holdings of excess reserves?
Banks
If the Fed sells $2 million of bonds to the First National Bank, what happens to reserves and the monetary base? Complete the T-accounts below to explain your answer.
First National Bank: Reserves -2 Securities +2 Federal Reserve System: Securities -2 Reserves -2 reserves fall by $2 million, monetary base falls by $2 million
If the Fed lends five banks an additional total of $100 million but depositors withdraw $50 million and hold it as currency, what happens to reserves and the monetary base? Use T-accounts to explain your answer.
Five Banks Reserves (+$50 mil.) Disc. loans (+$100 mil.) Deposits (-$50 mil.) Fed Disc. loans (+$100 m) Reserves (+$50 mil.) Currency (+$50 mil.) Reserves increase by $50 million, monetary base increases by $100 million
Compare the use of open market operations, loans to financial institutions, and changes in reserve requirements to control the money supply on the basis of the following criteria: flexibility, reversibility, effectiveness, and speed of implementation.
Identify the policy tools that have the greatest: flexibility: open market operations reversibility: open market operations speed of imple: open market operations Now identify the policy tools that have the least: flexibility: changes in reserve requirements reversibility: changes in reserve requirements speed of imple: changes in reserve requirements effectiveness: loans to financial institutions
If the Fed sells $2 million of bonds to Irving the Investor, who pays for the bonds with a briefcase filled with currency, what happens to reserves and the monetary base? Use T-accounts to explain your answer.
Investor: Currency -2 Securities +2 Federal Reserve System: Securities -2 Currency -2 reserves remain unchanged, monetary base falls by $2 mill
"Considering that raising the reserve requirements to 100% makes complete control of the money supply possible, Congress should authorize the Fed to raise reserve requirements to this level."
should not - do this because it will make it more difficult for individuals should - do this because it provides perfect control over the official should not - do this because it will reduce the amount of investment that takes place should not - do this because it will be very costly to restructure the
If the Fed buys $1 million of bonds from the First National Bank, but an additional 10% of any deposit is held as excess reserves, what is the total increase in checkable deposits? Assume that the required reserve ratio on checkable deposits is 10% and the public's holdings of currency do not change.
Checkable deposits increase by $5 million.
which of the following players can affect the money supply by changing reserve requirements?
The central bank