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Chapter 15: Q.7 (page 410)

“The Fed can perfectly control the amount of reserves in the system.” Is this statement true, false, or uncertain? Explain.

Short Answer

Expert verified

False. Fed ultimately can't control the level of reserves in the system

Step by step solution

01

Concept Introduction

The Fed will credit to banks when the need emerges and given the longing to go about as a moneylender after all other options have run out. So in this sense, the Fed is helpless before banks' requirements for acquired saves when it occurs

02

Explanation

This assertion is false. Since the Fed can't handle the amount of discount leading lending to monetary organizations, it doesn't have ideal command over how much holds in the banking system and hence, the monetary base.

03

Final Answer

False.

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Most popular questions from this chapter

Go to the St. Louis Federal Reserve FRED database, and find the most current data available on Currency (CURRNS), Total Checkable Deposits (TCDNS), Total Reserves (RESBALNS), and Required Reserves (RESBALREQ).

  1. Calculate the value of the currency deposit ratio c.
  2. Use RESBALNS and RESBALREQ to calculate the amount of excess reserves, and then calculate the value of the excess reserve ratio e. Be sure the units of total and required reserves are the same when you do the calculations.
  3. Assuming a required reserve ratio rr of 11%, calculate the value of the money multiplier m.

If you decide to hold \(100 less cash than usual and therefore deposit \)100 more cash in the bank, what effect will this have on checkable deposits in the banking system if the rest of the public keeps its holdings of currency constant?

17. For the following operations, what happens to the central bank's and commercial bank's reserves and the monetary base? Use T-account to show changes in balances. Assume that the amount is $10million.

a. The central bank provides loan to commercial bank.

b. The central bank sells securities to the commercial bank.

c. The commercial bank repays the loan to the central bank.

Using T-accounts, show what happens to checkable deposits in the banking system when the Fed sells $2 million of bonds to the First National Bank.

If the Fed lends five banks a total of\(100million but depositors withdraw \)50million and hold it as currency, what happens to reserves and the monetary base? Use T-accounts to explain your answer.
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