Scenario 2: Fed Sells Bonds to Henry Hyde

question 88

Multiple Choice

Scenario 2: Fed sells bonds to Henry Hyde
Consider a banking system in which the reserve requirement is 10%, banks try not to hold excess reserves, consumers and firms hold money only in the form of checking account balances, and all loan proceeds are spent. Suppose initially all banks in the system are loaned up. Now, suppose that the Fed sells a $50,000 bond to Henry Hyde, who pays for the bond by writing a check drawn against Jekyll Bank.
-Refer to Scenario 2. Which of the following happens when Henry Hyde pays for the bond by writing a check from his checking account at the Jekyll Bank?

• A) Jekyll Bank's checkable deposits decreases by $50,000 and its reserves decreases by $45,000.
• B) Jekyll Bank's checkable deposits decreases by $45,000 and its reserves decreases by $50,000.
• C) Jekyll Bank's checkable deposits and reserves decrease by $50,000 each.
• D) Money supply rises by $1,000,000.

---

Definitions:

Null Hypothesis

A statistical hypothesis that assumes no significant difference or effect exists between certain characteristics of a population or data.

Equals Sign

A symbol (=) indicating mathematical equality between two expressions.

Research Hypothesis

Another term for alternative hypothesis, indicating the expected outcome or belief regarding a study's findings.

Null Hypothesis

In statistical testing, it posits there is no effect or no difference, serving as the default or hypothesis to be tested.