Assume that banks lend out all their excess reserves

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Reference no: EM131389675

1-Assume that banks lend out all their excess reserves. Currently, the legal reserves that banks must hold equal 11.5 billion$. If the Federal Reserve decreases its reserve requirement from 10% to 5%, then there is potential for the whole banking system to raise money supply by:

a- 11.5 billion$

b- 230 billion$

c- 115 billion$

d- 57.5 billion$

e- 575 billion$

2-If a bond pays a fixed return of 500$ a year and the current interest rate has risen from 5% to 10%, then the bond price must have:

a- risen from 25$ to 50$

b- fallen from 50$ to 25$

c- risen from 5,000$ to 10,000$

d- fallen from 10,000$ to 5,000$

e- risen from 1,000$ to 5,000$

Reference no: EM131389675

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