When the Reserve Bank sells government securities, the banks' reserves will decrease and lending will contract, causing a decrease in the money supply. reserves will increase and lending will expand, causing an increase in the money supply. reserves/deposit ratio will increase and lending will expand, causing an increase in the money supply. reserve requirements will increase and lending will contract, causing a decrease in the money supply. reserves will increase and lending will contract, causing no change in the money supply.
Question
When the Reserve Bank sells government securities, the banks' reserves will decrease and lending will contract, causing a decrease in the money supply. reserves will increase and lending will expand, causing an increase in the money supply. reserves/deposit ratio will increase and lending will expand, causing an increase in the money supply. reserve requirements will increase and lending will contract, causing a decrease in the money supply. reserves will increase and lending will contract, causing no change in the money supply.
Solution
When the Reserve Bank sells government securities, the banks' reserves will decrease. This is because banks use their reserves to buy these securities. With fewer reserves, banks have less money to lend out, which contracts lending.
This decrease in lending leads to a decrease in the money supply. The money supply consists of all the money available in an economy, including both cash and deposits. When lending contracts, there are fewer loans being made and therefore less money being created, which decreases the money supply.
Therefore, the correct answer is: When the Reserve Bank sells government securities, the banks' reserves will decrease and lending will contract, causing a decrease in the money supply.
Similar Questions
The actual change in the money supply as a result of an increase in excess reserves will be less than the maximum change if banksGroup of answer choicesdo not lend out all of their excess reservesborrow from the Federal Reservesell some of their government securities to the Federal Reservelend only their excess reserves
If the Federal Reserve System buys government securities,Multiple Choicethe money supply will not change.interest rates on the securities will not change.interest rates on the securities will fall.the equilibrium price of the securities purchased will fall.
Banks can expand reserves, and make more loans by:Multiple select question.attracting deposits and encouraging saving.paying lower interest rates.borrowing from the Federal Reserve.lowering their reserves.
Changes in money supply can affect:Question 4Answera.Interest rates and borrowing costsb.Unemployment rates and labor force participationc.Stock market prices and bond yieldsd.Government budget deficits
Describe how each of the following can affect the money supply: (a) the central bank; (b)banks; and (c) depositors.
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