Table 142 Monetary Aggregates of the U Assume an Original Balance Sheet: Refer to Table 14

question 132

Multiple Choice

Table 14.2 Monetary Aggregates of the U.S.Financial System
$\begin{array}{|l|r|}\hline\text { Item } & \text { Amount } \\\hline \text { Cash held by public } & \text { \$100billion } \\\hline\text { Transactions deposits } & \text { \$300billion } \\\hline\text { Required reserves } & \text { \$30billion } \\\hline\text { Excess reserves } & \text { \$0billion } \\\hline \text { U.S. bonds held by public } & \$ 475 \text { billion }\\\hline \end{array}$
Assume an original balance sheet: Refer to Table 14.2.If the Fed sells $20 billion in bonds to the public,all of the following are true except

• A)The public will hold $495 billion worth of bonds.
• B)M1 will decrease initially by $20 billion.
• C)M2 will expand initially by $20 billion.
• D)Additional increases in M1 will occur after the multiplier process.

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Definitions:

Demand

The quantity of a good or service that consumers are willing and able to purchase at various prices during a given time period.

Exchange Rate

The value of one currency for the purpose of conversion to another, determining how much of one currency can be exchanged for another.

Exchange Rate

The value of one currency expressed in terms of another currency, determining how much of one currency can be exchanged for another.

Depreciation

The process of allocating the cost of a tangible asset over its useful life, reflecting its decrease in value over time.