This topic contains a solution. Click here to go to the answer

Author Question: Suppose the Fed buys government securities from a commercial bank. Why is there a multiplier effect ... (Read 145 times)

rayancarla1

  • Hero Member
  • *****
  • Posts: 571
Suppose the Fed buys government securities from a commercial bank. Why is there a multiplier effect on the quantity of money?
 
  What will be an ideal response?

Question 2

The U.S. Gini ratio for income has ________ within recent decades, which means economic inequality has ________.
 
  A) decreased; increased
  B) decreased; decreased
  C) increased; decreased
  D) increased; increased



Related Topics

Need homework help now?

Ask unlimited questions for free

Ask a Question
Marked as best answer by a Subject Expert

nmyers

  • Sr. Member
  • ****
  • Posts: 336
Answer to Question 1

When the Fed buys government securities from a bank, the payment to the bank is in the form of reserves. Hence the bank gains excess reserves. The bank can loan these excess reserves. When the loan is spent, the recipients deposit some or all of the funds in their banks. These banks gain deposits (which increase the quantity of money) as well as excess reserves. The second round banks then loan their excess reserves. And when these loans are spent, once again the recipients deposit some or all of the funds in their banks. These third-round banks thereby gain deposits (which further increases the quantity of money) as well as excess reserves. These reserves are loaned, spent, and then deposited in a fourth round of banks, which still further increases the quantity of money. Hence the process of loaning and depositing the proceeds increases the quantity of money by a multiple of the initial amount of the open market operation.

Answer to Question 2

D




rayancarla1

  • Member
  • Posts: 571
Reply 2 on: Jun 29, 2018
Excellent


bimper21

  • Member
  • Posts: 309
Reply 3 on: Yesterday
Great answer, keep it coming :)

 

Did you know?

According to the Migraine Research Foundation, migraines are the third most prevalent illness in the world. Women are most affected (18%), followed by children of both sexes (10%), and men (6%).

Did you know?

It is important to read food labels and choose foods with low cholesterol and saturated trans fat. You should limit saturated fat to no higher than 6% of daily calories.

Did you know?

When blood is deoxygenated and flowing back to the heart through the veins, it is dark reddish-blue in color. Blood in the arteries that is oxygenated and flowing out to the body is bright red. Whereas arterial blood comes out in spurts, venous blood flows.

Did you know?

Patients who cannot swallow may receive nutrition via a parenteral route—usually, a catheter is inserted through the chest into a large vein going into the heart.

Did you know?

Thyroid conditions may make getting pregnant impossible.

For a complete list of videos, visit our video library