Suppose a bank repays a 10 million discount loan that it had ...

[madam-professor]

Suppose a bank repays a 10 million discount loan that it had previously borrowed from the Fed. Illustrate how this affects the balance sheets of the Fed and the banking system.
 
  What will be an ideal response?

Question 2

If households spend 0.40 of each additional dollar of increased income, the expenditure multiplier will be
 
  A) 1.67.
  B) 2.5.
  C) 4.
  D) 6.

[kilada]

Answer to Question 1

The Fed's assets decline by 10 million as discount loans decline and its liabilities decline by 10 million as reserves fall. The banking system's assets decline by 10 million due to a decline in reserves and liabilities decrease by 10 million due to a decline in discount loans.

Answer to Question 2

A

[madam-professor]

Thank you

[kilada]

No problemo