Additional money received from the sale of bonds to the fed

Assignment Help Business Economics

Reference no: EM131173461

Suppose that the Fed purchases from bank A some bonds in the open market and that, before the sale of bonds, bank A had no excess reserves.

a) Describe what initially happens to the reserves of bank A.

b) If bank A does not want to hold excess reserves, what will it do with the additional money received from the sale of bonds to the Fed?

c) Why do we expect, at least in usual times, that the amount of checking deposits in the economy will go up?

d) Now suppose that the minimum required reserve ratio for banks is 1/10. Also suppose that banks hold no excess reserves and that currency in circulation is unchanged from the purchase of bonds. If the Fed buys $20 billions of bonds from bank A, what will be the increase in checking deposits?

Reference no: EM131173461

Questions Cloud

The fed is concerned that this overheated economy : The Fed is concerned that this overheated economy will put pressure on prices and lead to a too high level of inflation. For this reason the Fed wants to engage in contradictory monetary policy, reducing AD, and so output, thereby increasing unemploy..

Create website security plan that will keep the information : The CIO of the online grocery store has asked you to create a website security plan that will keep the information that they are entrusted with safe, secure and out of the news.

Damages is very expensive cost of business : Many businesses claim that the threat and cost of being sued for damages is a very expensive cost of business. So, one one side, there is the argument that caps, etc. will help businesses keep open. On the other side is the issue of accountability. I..

Limitations of the project management life cycle theory : In your opinion, what are the limitations of the project management life cycle theory? How would you improve the project management plans of two other project managers if you were the project manager of their respective projects? Be supportive and ..

Additional money received from the sale of bonds to the fed : Suppose that the Fed purchases from bank A some bonds in the open market and that, before the sale of bonds, bank A had no excess reserves. Describe what initially happens to the reserves of bank A. If bank A does not want to hold excess reserves, wh..

What key points would be addressed to the employees and why : You are presented with a unique opportunity to deliver presentations to company employees concerning this fact. What key points would be addressed to the employees and why?

Depreciates it by straight-line depreciation : Jaguar Printing can purchase a large-volume copier for $18,000 and depreciates it by straight-line depreciation. Jaguar has a 35% combined incremental tax rate. If Jaguar requires a real 9% after-tax rate of return on its investments, should the firm..

Problem regarding the current share price : Dividends are expected to grow at a rate of 26 percent for the next three years, with the growth rate falling off to a constant 8 percent thereafter. If the required return is 15 percent and the company just paid a dividend of $3.55, what is the c..

User Account

All Pages