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Katen [24]
4 years ago
6

f the Fed purchases​ $1 million worth of securities and the required reserve ratio is​ 8%, by how much will deposits change​ (as

suming no change in excess reserves or the​ public's currency​ holdings)? A. rise by​ $8 million B. rise by​ $12.5 million C. decline by​ $1 million D. rise by​ $1 million
Business
1 answer:
katrin [286]4 years ago
3 0

Answer:

D. rise by​ $1 million

Explanation:

For Fed if it purchases any security from any other bank then the balance of deposits will increase accordingly with such value in Fed.

As Fed is a central bank, it will be termed as reserves in the books of bank accordingly its reserves will increase as Fed has made investment in it.

Although, the deposits of Fed will also increase as because by purchasing the securities its cash in hand decreases and it tends to increase the deposits, by the same.

Therefore the deposits will increase by $1 million only.

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Interest Expense

The cost of borrowing money is referred to as interest expenditure. Interest expenditure in the income statement might represent the cost of borrowing money from banks, bond investors, and other sources.

Main Content

$50

A note payable is a type of financial instrument. In this case, the note payable is due in three months. So, after one month, we will record the following interest on the note payable:

15000*4%*(3/12) = 150

For 1 month = 150/3  =  50

The note payable was sold on December 1, and we must calculate its interest on December 31, which is one month later. As a result, we will divide total interest 150 by 3. This will provide us with one month's interest.

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