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 147 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


ricroger

  • Member
  • Posts: 352
Reply 3 on: Yesterday
Wow, this really help

 

Did you know?

Though newer “smart” infusion pumps are increasingly becoming more sophisticated, they cannot prevent all programming and administration errors. Health care professionals that use smart infusion pumps must still practice the rights of medication administration and have other professionals double-check all high-risk infusions.

Did you know?

The first documented use of surgical anesthesia in the United States was in Connecticut in 1844.

Did you know?

Many people have small pouches in their colons that bulge outward through weak spots. Each pouch is called a diverticulum. About 10% of Americans older than age 40 years have diverticulosis, which, when the pouches become infected or inflamed, is called diverticulitis. The main cause of diverticular disease is a low-fiber diet.

Did you know?

Hyperthyroidism leads to an increased rate of metabolism and affects about 1% of women but only 0.1% of men. For most people, this increased metabolic rate causes the thyroid gland to become enlarged (known as a goiter).

Did you know?

In women, pharmacodynamic differences include increased sensitivity to (and increased effectiveness of) beta-blockers, opioids, selective serotonin reuptake inhibitors, and typical antipsychotics.

For a complete list of videos, visit our video library