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