Question 1
Assume there is no leakage from the banking system and that all commercial banks are loaned up. The required reserve ratio is 10%. If the Fed buys $10 million worth of government securities from the public, the change in the money supply will be
◦ $1 million.
◦ $10 million.
◦ $100 million.
◦ $110 million.
Question 2
The money supply has increased from $1.4 trillion to $1.45 trillion. Which of the following could have caused this increase?
◦ The Fed sold government securities to the public.
◦ Consumers who were holding money outside the banking system deposit this money.
◦ The Fed increased the discount rate.
◦ Commercial banks began to hold excess reserves.