How will the purchase of $100 million of government securities by the Federal Reserve change bank reserves and total checking account deposits in the banking system as a whole? Assume that banks do not hold any excess reserves, that households and firms
do not change the amount of currency they hold, and that the required reserve ratio is 20 percent.
What will be an ideal response?
Bank reserves will increase by $100 million when the seller of the bond deposits the $100 million in its checking account. Total checking account deposits in the banking system as a whole will increase by $500 million—the $100 million increase in reserves times the simple deposit multiplier of 5.
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A regulation that sets the lowest price at which it is legal to trade a good is a
A) search ceiling. B) price floor. C) production ceiling. D) price ceiling. E) subsidy.
Advocates of steel tariffs to protect U.S. steel firms realize that when imposing such tariffs, the gains of firms are outweighed by the losses to consumers. This implies that
A) such advocates value producer surplus more than consumer surplus. B) such advocates want to help consumers. C) such advocates value consumer surplus more than producer surplus. D) such advocates value producer surplus and consumer surplus equally.