Respuesta :
Answer:
a. The Fed buys bonds in open-market operations. INCREASES MONEY SUPPLY
b. The Fed reduces the reserve requirement. INCREASES MONEY SUPPLY
c. The Fed increases the interest rate it pays on reserves. REDUCES MONEY SUPPLY
d. Citibank repays a loan it had previously taken from the Fed. REDUCES MONEY SUPPLY
e. After a rash of pickpocketing, people decide to hold less currency. REDUCES MONEY SUPPLY
f. Fearful of bank runs, bankers decide to hold more excess reserves. REDUCES MONEY SUPPLY
g. The FOMC increases its target for the federal funds rate. REDUCES MONEY SUPPLY
Explanation:
a. The Fed buys bonds in open-market operations: This will INCREASE money supply because the Fed will pay cash to bond holders in return and the implication of that action is the injecting money into circulation
b. The Fed reduces the reserve requirement. This action will INCREASE the supply of money because it implies that commercial bank are been encouraged to keep less money as reserve and pay out the rest which means more money in circulation.
c. The Fed increases the interest rate it pays on reserves. This action will REDUCE the supply of money in circulation because it implies that commercial banks will view such increase in interest as an incentive to save money rather than pay it out. They (commercial banks) are being encouraged to keep more money as reserve which means less money in circulation.
d. Citibank repays a loan it had previously taken from the Fed. This action will REDUCE the supply of money in circulation because it implies that the commercial bank (Citibank) will have to pay such a government loan with the money in circulation which means less money in circulation.
e. After a rash of pickpocketing, people decide to hold less currency. This action will REDUCE the supply of money in circulation because it implies that people will keep less money and pay the most of their cash into the banks. This reduction in demand for cash will trigger a corresponding fall in supply of money in circulation.
f. Fearful of bank runs, bankers decide to hold more excess reserves. This action will REDUCE the supply of money in circulation because it implies that commercial banks will hold more money rather than pay it out. This keeping of more money as reserve means less money in circulation.
g. The Federal Open Market Committee increases its target for the federal funds rate. This action will REDUCE the supply of money in circulation because it implies that commercial banks can hardly borrow to meet the Fed’s reserve requirement, hence this action will be a squeeze on commercial banks to use the existing cash in circulation to meet their reserve requirement and as a result, banks will have less money to pay out as cash.
