Log out Go to App
Go to App

Learning Materials

Features

Discover

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.

Unlock Step-by-Step Solutions & Ace Your Exams!

  • Full Textbook Solutions

    Get detailed explanations and key concepts

  • Unlimited Al creation

    Al flashcards, explanations, exams and more...

  • Ads-free access

    To over 500 millions flashcards

  • Money-back guarantee

    We refund you if you fail your exam.

Start your free trial

Over 30 million students worldwide already upgrade their learning with Vaia!

One App. One Place for Learning.

All the tools & learning materials you need for study success - in one app.

Get started for free

Most popular questions from this chapter

The money multiplier declined significantly during the period 1930-1933 and also during the recent financial crisis of 2008-2010. Yet the 2008-2010money supply decreased by 25% in the Depression period but increased by more than 20% during the recent financial crisis. What explains the difference in outcomes?

Suppose that the required reserve ratio is 9%, currency in circulation is 620billion, the amount of checkable deposits is 950billion, and excess reserves are 15billion.

a. Calculate the money supply, the currency deposit ratio, the excess reserve ratio, and the money multiplier.

b. Suppose the central bank conducts an unusually large open market purchase of bonds held by banks of 1300billion due to a sharp contraction in the economy. Assuming the ratios you calculated in part (a) remain the same, predict the effect on the money supply.

c. Suppose the central bank conducts the same open market purchase as in part (b), except that banks choose to hold all of these proceeds as excess reserves rather than loan them out, due to fear of a financial crisis. Assuming that currency and deposits remain the same, what happens to the amount of excess reserves, the excess reserve ratio, the money supply, and the money multiplier?

d. Following the financial crisis in 2008, the Federal Reserve began injecting the banking system with massive amounts of liquidity, and at the same time, very little lending occurred. As a result, the M1 money multiplier was below 1 for most of the time from October 2008 through 2011. How does this scenario relate to your answer to part (c)?

In October 2008, the Federal Reserve began paying interest on the amount of excess reserves held by banks. How, if at all, might this affect the multiplier process and the money supply?

If a bank depositor withdraws$1000 of currency from an account, what happens to reserves, checkable deposits, and the monetary base?

Suppose the Fed buys $1million of bonds from the First National Bank. If the First National Bank and all other banks use the resulting increase in reserves to purchase securities only and not to make loans, what will happen to checkable deposits?
See all solutions

What do you think about this solution?

We value your feedback to improve our textbook solutions.

Study anywhere. Anytime. Across all devices.

Sign-up for free