Answer:
A. If the reserve requirement is 5% then money multiplier is 20 and the the money supply for each reserve requirement is $10,000 billion
B. If the reserve requirement is 10% then money multiplier is 10 and the the money supply for each reserve requirement is $5,000 billion
For a given level of reserves, a lower reserve requirement is associated with a larger money supply. Suppose the Federal Reserve (the Fed) wants to increase the money supply by $500 billion. Again, you can assume that banks do not hold excess reserves and that households do not hold currency. If the reserve requirement is 10%, the Fed will use open-market operations to buy $50 billion worth of U.S. government bonds. Now, suppose that rather than immediately lending out all excess reserves, banks begin holding some excess reserves due to uncertain economic conditions. Specifically, in addition to the required reserves of 10%, banks hold an additional 40% of their deposits as reserves. This increase in the reserve ratio causes the money multiplier to fall to 2. Under these conditions, the Fed would need to buy $250 billion worth of U.S. government bonds in order to increase the money supply by $500 billion.
The following statements help to explain why the Fed cannot precisely control the money supply are:
B- The Fed cannot control the amount of money that households choose to hold as currency.
C- The Fed cannot control whether and to what extent banks hold excess reserves.
Explanation:
A. If the reserve requirement is 5% then money multiplier is 20 (= 100%:5%) and the the money supply for each reserve requirement is $10,000 billion (=$500 billion x 20)
B. If the reserve requirement is 10% then money multiplier is 10 (= 100%:10%) and the the money supply for each reserve requirement is $5,000 billion (=$500 billion x 10)
Answer:
The increase in yield to maturity from 5.5% to 7% will cause the price of the bond to fall from $ 1,057.46 to $ 972.70
Explanation:
In order to ascertain the impact on the bond of a sudden increase in the yield to maturity from 5.5% to 7%, the present value of the bond, the current price is computed using yield of maturity of 5.5% and 7% respectively.
In calculating the present value, a discounting factor is used to state today's value of the future cash flows from the bond, given as 1/(1+r)^N, where r is the yield to maturity divided by 2 , in order to show that the bond is a semi-annual interest paying bond.The fact that the bond is a semiannual one means interest would be paid 14 times( 7 years *2)
The present value is computed in the attached.
Answer:Low volume and complex in nature
Explanation: The product line is likely to contain low volume and complex in nature .The Slick Heating Company is specializing in heat products of low volume and complex in nature .
Explanation:
Globalization has made it possible for terrorist networks to communicate more easily with one another, and to recruit new members. Additionally, American involvement in the Middle East has sparked a violent reaction from many extremist groups in the area.
