Assume the M2 multiplier is 3 and the reserve ratio is 10. If the central bank buys 100 million of government securities from banks, the banking system's reserves will:
a. Rise by 10 million.
b. Rise by 100 million.
c. Fall by 100 million.
d. Fall by 10 million.
e. Not change.
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 net nonreserve-related international borrowing/lending in the context of the Three-Sector-Model?
a. The quantity of real loanable funds per time period falls, and net nonreserve-related international borrowing/lending becomes more negative (or less positive).
b. The quantity of real loanable funds per time period and net nonreserve-related international borrowing/lending remain the same.
c. There is not enough information to determine what happens to these two macroeconomic variables.
d. The quantity of real loanable funds per time period falls, and net nonreserve-related international borrowing/lending becomes more positive (or less negative).
e. The quantity of real loanable funds per time period rises, and net nonreserve-related international borrowing/lending becomes more negative (or less positive).
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