Suppose the central bank of Altoska has raised its reserve requirements from 10 percent to 12 percent. If Trust Bank, a commercial bank, finds that it is not holding enough in reserves to meet the higher requirements, then it is likely to:
a. increase its excess reserves
b. buy bonds to increase the size of its reserve assets.
c. reduce the quantity of money and loans on the balance sheet.
d. borrow from the central bank for a short term.
d
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Youland is hit by a recession. What will be the impact of a countercyclical policy on labor demand in Youland if nominal wages are downwardly rigid?
What will be an ideal response?
Suppose the federal government is successful in reducing the budget deficit, households decide to increase their saving, corporate taxes are reduced, and businesses expect to see an increase in future profits
Use the loanable funds model to explain how each of these events affects the demand and supply of loanable funds and illustrate your answer with a graph. Describe what should happen to the equilibrium real interest rate and the equilibrium levels of saving and investment?