The reserve ratio is 10 percent and all loan proceeds are deposited in transactions accounts. A bond dealer has 100 million in deposits, 8 million in vault cash, and 7 million in deposits at the Fed.
The Fed sells 1 million in securities to the bond dealer. As a result, of this transaction alone
A) the money supply falls by 1 million and total reserves rise by 1 million.
B) the money supply falls by 1 million and total reserves fall by 1 million.
C) the money supply rises by 1 million, total reserves fall by 900,000.
D) the money supply rises by 1 million, but reserves do not change.
Question 2
The figure above shows the market for iPods. Which of the following shifts the demand curve from D0 to D1?
A) a requirement that all students at universities have an iPod
B) a decrease in the price of Zunes, a substitute for iPods
C) a decrease in the price of iPods
D) an increase in the price of iPods
E) an increase in people's incomes
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