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Chapter 15: Q11 (page 410)
鈥淭he money multiplier is necessarily greater than 鈥� Is this statement true, false, or uncertain? Explain your answer
The statement is true.
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Suppose the central bank of your country increases reserves by purchasing $1 million worth of bonds from banks and that the banking system in your economy is in equilibrium. What will happen to the level of checkable deposits? Use T-accounts to explain your answer.
Suppose the Fed buys million of bonds from the First National Bank. If the First National Bank and all other banks use the resulting increase in reserves to purchase securities only and not to make loans, what will happen to checkable deposits?
17. For the following operations, what happens to the central bank's and commercial bank's reserves and the monetary base? Use T-account to show changes in balances. Assume that the amount is million.
a. The central bank provides loan to commercial bank.
b. The central bank sells securities to the commercial bank.
c. The commercial bank repays the loan to the central bank.
If reserves in the banking system increase by billion because the Fed lends billion to financial institutions, and checkable deposits increase by billion, why isn鈥檛 the banking system in equilibrium? What will continue to happen in the banking system until equilibrium is reached? Show the T-account for the banking system in equilibrium.
Describe how each of the following can affect the money supply:
(a) The central bank
(b) banks
(c) depositors.
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