When a member bank borrows reserves from the Fed; a. it pays an interest rate equivalent to the coupon rate on long-term government bonds. b. it pays an interest rate equal to the federal funds in the reserves market. c. it pays an interest rate called the discount rate.
The equilibrium quantity of money increases and the equilibrium interest rate decreases. d. The equilibrium quantity of money increases and the equilibrium interest rate decreases. If bond prices fall; a. interest rates rise, which in turn, discourage investment.
The demand for bonds increases because bonds will be a more attractive alternative to money. c. Bonds and money will become perfect substitutes since both are non-interest earning assets and optimal for making purchases. d. People will hold their wealth in the form of money rather than in bonds. d.
c. the Fed does not change them much at all because doing so would make banking operations more difficult When a member bank borrows reserves from the Fed; a. it pays an interest rate equivalent to the coupon rate on long-term government bonds. b. it pays an interest rate equal to the federal funds in the reserves market.
If the Fed raised the reserve requirement, the demand for reserves would. increase, so the federal funds rate would rise. If the reserve ratio is 5 percent, banks do not hold excess reserves, and people do not hold currency, then when the Fed sells $20 million worth of government bonds, bank reserves. decrease by $20 million and the money supply ...
If the money multiplier is 3 and the Fed wants to increase the money supply by $900,000, it could. buy $300,000 worth of bonds. If the Federal Reserve increase the interest rate on bank deposits at the Fed, banks will want to hold. more reserves, so the reserve ratio will rise. Suppose a burrito costs $6.
When conducting an open-market sale, the Fed. sells government bonds, and in so doing decreases the money supply. A bank's reserve ratio is 7 percent and the bank has $1,000 in deposits. Its reserves amount to. $70.