Bank reserves include:
a. High quality (i.e., AAA-rated) loans.
b. Vault cash and deposits at the central bank.
c. Tellers, who are trained and ready to work in case of a general bank strike.
d. Government bonds, high-quality (e.g., AAA) corporate stocks, and cash in circulation.
e. Checking deposits and borrowings from the central bank.
Question 2
Assume that the central bank increases the reserve requirement. If the nation has highly mobile international capital markets and a flexible exchange rate system, what happens to the real risk-free interest rate and reserve-related (central bank) transactions in the context of the Three-Sector-Model?
a. The real risk-free interest rate rises, and reserve-related (central bank) transactions become more positive (or less negative).
b. The real risk-free interest rate rises, and reserve-related (central bank) transactions become more negative (or less positive).
c. The real risk-free interest rate rises, and reserve-related (central bank) transactions remain the same.
d. The real risk-free interest rate and reserve-related (central bank) transactions remain the same.
e. The real risk-free interest rate falls, and reserve-related (central bank) transactions become more negative (or less positive).
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