Author Question: Assuming a required reserve ratio of 10 and the Fed purchased 1 million worth of mortgage-backed ... (Read 37 times)

Mimi · **on:** Jun 30, 2018

Assuming a required reserve ratio of 10 and the Fed purchased 1 million worth of mortgage-backed securities, make use of the simple deposit multiplier to determine how much checking deposits would change.

A) increase by 1 million
B) increase by 10 million
C) decrease by 1 million
D) decrease by 10 million

Question 2

What impact do savings rates in Belgium have on the real interest rate that businesses in Belgium must pay to obtain the funds to finance their spending on plant and equipment?

What will be an ideal response?

djpooyouma · **Reply #1 on:** Jun 30, 2018

Answer to Question 1

A

Answer to Question 2

Because Belgium is a small open economy, the domestic real interest rate will equal the world real interest rate. Because domestic saving in Belgium has no effect on the world real interest rate, the savings rate in Belgium has no impact on the real interest rate at which businesses in Belgium are able to borrow funds.