Home / Questions / Does an open market operation in which the Fed buys securities from the general public de
Does an open market operation in which the Fed buys securities from the general public decrease or increase the banking system's reserves?
Answer: An open market purchase of government securities by the Fed increases the banking system's reserves.
Topic: Open market operation
Skill: Level 2: Using definitions
Section: Checkpoint 11.4
Status: DMC
8) The Fed conducts an open market operation and buys $50,000 of government securities from Commerce Bank. The desired reserve ratio is 25 percent. What is the change in Commerce Bank's total reserves and its excess reserves?
Answer: When the Fed buys $50,000 of government securities from Commerce Bank, Commerce Bank's total reserves increase by $50,000. None of these reserves are desired reserves, so Commerce Bank's excess reserves also increase by $50,000.
Topic: Open market operation
Skill: Level 3: Using models
Section: Checkpoint 11.4
Status: AA
9) If the Fed sells $100 million of U.S. government securities, what happens to the quantity of money?
Answer: If the Fed sells $100 million of U.S. government securities, the monetary base decreases and, along with it, the quantity of money decreases. The money multiplier shows that the quantity of money decreases by more than $100 million.
Topic: Open market operation
Skill: Level 2: Using definitions
Section: Checkpoint 11.4
Status: CT
10) When the Fed buys a government security, what happens to the monetary base and the quantity of money? Which changes by more or do both change by the same amount?
Answer: When the Fed buys a government security, both the monetary base and the quantity of money increase. As reflected by the money multiplier, the increase in the quantity of money exceeds the increase in the monetary base.
Topic: Open market operation
Skill: Level 2: Using definitions
Section: Checkpoint 11.4
Status: MR
11) "When the Fed makes an open market purchase of government securities, the quantity of money will eventually decrease by a fraction of the initial change in the monetary base." Is the previous statement correct or incorrect? Explain your answer.
Answer: The statement is wrong on two counts. First, if the Fed makes an open market purchase of government securities, the quantity of money will increase rather than decrease. Second, the money multiplier points out that the change in the quantity of money will be greater than, not less than, the initial change in the monetary base.
Topic: Open market operation
Skill: Level 2: Using definitions
Dec 08 2019 View more View Less
Down Under Boomerang, Inc., is considering a new three-year expansion project that requires an initial fixed asset investment of $2.85 million. The fixed asset will be de...
Aug 22 2020How many Junior Reserve Officer Training Corps units are across the Contintal United States, Alaska, Hawaii, Guam, Italy, Japan and Spain? I'll accept answers within 10%.
Aug 11 2021Draw the structure of the ff. aldehydes and ketones. a. 3-chlorobutanal 0. 8,8-dibromo-4-ethylcyclohexanone O. 2,4-dimethylpentanone .Draw the structure of the ff. compou...
May 16 2021Amarindo, Inc.â (AMR), is a newly public firm with 11.5 million shares outstanding. You are doing a valuation analysis of AMR. You estimate its free cash flow in the co...
May 16 2021Project A: 600*FVIF (10%, 3) + 600*FVIF (10%, 2)+850*FVIF(10%,1 600*1331+600*1.21+850*1.1 =2459.6 300+387*PVIF (10%, 1) +193*PVIF (10%, 2) +100*PVIF(10%,3) +180*PVIF(10%,...
May 26 2021Stocks A and B have the following historical returns: Stock B's Returns, le (13.40%) Year Stock A's Returns, A 2014 (21.50%) 2015 39.75 2016 11.25 2017 (1.00) 2018 26.25 ...
Aug 17 2020Use your imagination in expanding the following sentences. When necessary, select the correct verb form first.Not one of the plans (was, were)
Jul 01 2021C&D Services contracts with Ace Concessions, Inc., to service Ace's vending machines. Later, C&D wants Dean Vending Services to assume the duties under a new contract. Ac...
Aug 01 2021Using the Ratio Test or Root Test In Exercises 83-86, use the Ratio Test or the Root Test to determine the convenience or divergence of the series.
Jul 28 2021You are a server in a restaurant, always interested in going the extra mile for your customers. Patrick, a regular customer in your section, has ordered sweet iced tea an...
Dec 19 2019