1-The FOMC has instructed the FRBNY Trading Desk to purchase$430 million in U.S. Treasury securities. The Federal Reserve hascurrently set the reserve requirement at 10 percent of transactiondeposits. Assume U.S. banks withdraw all excess reserves and giveout loans.
a. Assume also that borrowers eventually returnall of these funds to their banks in the form of transactiondeposits. What is the full effect of this purchase on bank depositsand the money supply?
b. What is the full effect of this purchase onbank deposits and the money supply if borrowers return only 90percent of these funds to their banks in the form of transactiondeposits?
2- The FOMC has instructed the FRBNY Trading Desk to purchase$660 million in U.S. Treasury securities. The Federal Reserve hascurrently set the reserve requirement at 6 percent of transactiondeposits. Assume U.S. banks withdraw all excess reserves and giveout loans.
a. Assume also that borrowers eventually returnall of these funds to their banks in the form of transactiondeposits. What is the full effect of this purchase on bank depositsand the money supply?
b. What is the full effect of this purchase onbank deposits and the money supply if borrowers return only 94percent of these funds to their banks in the form of transactiondeposits?
