Consider an economy with reserve requirement

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Reference no: EM131164005

1. Consider an economy with a reserve requirement m = 0.25, and assume that banks, on average, keep some excess reserves. The value of the money multiplier will be

(a) equal to 4

(b) larger than 4

(d) zero, since there are excess reserves in the system.

2. For given increase in the supply of reserves to banks by the Fed, the drop in the federal funds rate (FFR)

(a) is larger the more sensitive to the FFR the demand for reserves (by banks) is

(b) is larger the less sensitive to the FFR the demand for reserves (by banks) is

(d) is equal to the total change in the supply of reserves

3. An increase in money supply by the Fed (via an increase in the supply of reserves to banks) is most successful when

(a) the demand of reserves by banks is steeper

(b) consumption and investments are more sensitive to interest rate changes

(d) all of the above conditions are realized.

Reference no: EM131164005

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