Assume the M2 multiplier is 3, and the reserve ratio is 10. If the central bank sells 100 million in government securities to banks, banking system reserves will:
a. Fall by 10 million.
b. Rise by 10 million.
c. Not change.
d. Rise by 300 million.
e. Fall by 100 million.
Question 2
Assume that the central bank purchases government securities in the open market. If the nation has highly mobile international capital markets and a flexible exchange rate system, what happens to the quantity of real loanable funds per time period and the nominal value of the domestic currency in the context of the Three-Sector-Model?
a. The quantity of real loanable funds per time period rises, and nominal value of the domestic currency remains the same.
b. The quantity of real loanable funds per time period rises, and nominal value of the domestic currency rises.
c. The quantity of real loanable funds per time period rises, and nominal value of the domestic currency falls.
d. There is not enough information to determine what happens to these two macroeconomic variables.
e. The quantity of real loanable funds per time period falls, and nominal value of the domestic currency rises.
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