2. Monetary policy authorities at the US Federal Reserve attempt to maintain sustainable economic growth with low levels of inflation. Assume inflation is resigned at rates higher
than the central bank's goals
a. Identify the open market operation the Fed will enact due to high rates of inflation
. Will this action result in any change in demand deposits for commercial
banks?
Will the action result in any change in required reserves for commercial
banks?
b. Based on your answer to part (a), what will happen to the price of bonds? Explain
why this occurs
c. Due to the strong economy, James decides to deposit $100,000 cash into his
checking account at First Bank
Identity the IMMEDIATE impact of James' deposit on the following:
money supply and demand deposits
11. Given a reserve requirement of 20%, calculate the amount of James
deposit the bank can lend
III. What is the maximum amount of deposits generated from the original
deposit
N. What might cause the money supply to expand less than the amount you
calculated in part (mm)?