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How does total amount of deposits in banking system increase

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    Assignment ID: FG133289258


    1. Explain whether each of the following events increases or decreases the money supply.

    a. The Fed buys bonds in open-market operations.

    b. The Fed reduces the reserve requirement.

    c. The Fed increases the interest rate it pays on reserves.

    d. Citibank repays a loan it had previously taken from the Fed.

    e. After a rash of pickpocketing, people decide to hold less currency.

    f. Fearful of bank runs, bankers decide to hold more excess reserves.

    g. The FOMC increases its target for the federal funds rate.

    2. You take $100 you had kept under your mattress and deposit it in your bank account. If this $100 stays in the banking system as reserves and if banks hold reserves equal to 10% of deposits, by how much does the total amount of deposits in the banking system increase? By how much does the money supply increase?

    3. If the Fed wants to increase the money supply with open-market operations, what does it do?

    4. What are reserve requirements? What happens to the money supply when the Fed raises reserve requirements?

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