Suppose the Fed sells $100 million of U.S. securities to the security dealers. If the reserve requirement is 20 percent, the currency holdings of the public are unchanged, and banks have zero excess reserves both before and after the transaction, the total impact on the money supply will be a:

a. $100 million decrease. b. $500 million increase.
c. $500 million decrease. d. $100 million increase.

c

Economics

You might also like to view...

Suppose that Congress allocates $1 billion to clean up after hurricanes in 2016. It also raises taxes by $1 billion to keep the deficit from growing. If the marginal propensity to consume is 0.9, what is the effect on equilibrium GDP?

A) GDP increases by $900,000. B) GDP increases by $10 billion. C) GDP increases by $1 billion. D) GDP does not change.

Economics

What is logrolling?

A) a situation where a policymaker gets the government to fund a non-essential project benefiting her family members B) a situation where a policymaker accepts bribes to prevent proposed legislation from coming to a vote C) a situation where policymakers transfer resources from those voters who are unlikely to have a huge impact on the political outcome to those who contribute to political campaigns D) a situation where a policymaker votes to approve a bill in exchange for favorable votes from his colleagues on other bills

Economics