PracticeQ4 (2)

PracticeQ4 (2) - The FED can always e²ect an expansion...

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Practice Quiz 4 To expand the money supply the FED should: a. Raise the required reserve ratio b. Buy government securities from banks c. Sell government securities to banks d. Raise the discount rate The interest rates will: a. Go up b. Go down c. Remain unchanged Assume the FED’s transaction to contract the money supply is $50M and to maximize pro±ts the banks keep reserves down to the legal minimum. Given a very large number of standard banks whose initial position is shown below. FILL IN THE BLANKS : BANK 1 Assets Liabilities R$ 1 0 0M DD $500M GS 200M L2 0 0 M Assets Liabilities R$ M DD $ M GS M L M Assets Liabilities R$ M DD $ M GS M L M BANK 2 Assets Liabilities R$ 1 0 0M DD $500M GS 200M L2 0 0 M Assets Liabilities R$ M DD $ M GS M L M Assets Liabilities R$ M
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Unformatted text preview: The FED can always e²ect an expansion because: a. The FED can sell government securities at a loss b. The FED can verbally convince bank presidents to call in loans c. Banks may decide not to make new loans. d. False statement. The maximum money multiplier for this problem is: a. 5 b. 4 c. 2 d. 10 (3) (5 pts) Assume the FED’s transaction to expand the money supply is $50M and to maximize pro±ts the banks keep reserves down to the legal minimum and the required reserve ration is 20%. Given all action takes place in a single bank whose initial position is shown below. FILL IN THE BLANKS : BANK 1 Assets Liabilities R $100M DD $500M GS 200M L 200M Assets Liabilities R $ M DD $ M GS M L M Assets Liabilities R $ M DD $ M GS M L M BANK 1 Second Round Assets Liabilities R $ M DD $ M GS M L M Assets Liabilities R $ M DD $ M GS M L M Assets Liabilities R $ M DD $ M GS M L M WORK SPACE BELOW 5...
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This note was uploaded on 12/05/2011 for the course M 341 taught by Professor Hietmann during the Spring '08 term at University of Texas.

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