Use the Following to Answer Questions

question 165

Multiple Choice

Use the following to answer questions .
Exhibit: Fed Sells Bonds
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.
-(Exhibit: Fed Sells Bonds) As a result of the open market sale, Jekyll Bank

• A) can create $50,000 of new loans.
• B) will have $45,000 of excess reserves.
• C) will have to borrow reserves to replenish its reserve deficiency.
• D) will have an increase in checkable deposits.

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Definitions:

Multiple Regression

A mathematical method that utilizes multiple predictor variables to forecast the result of a dependent variable.

Independent Variables

Variables in an experiment or model that are manipulated or categorized to determine their effect on a dependent variable.

Multicollinearity

A statistical phenomenon where several independent variables in a model are correlated, impacting the model’s accuracy.

Dependent Variables

Variables in an experiment or model that are expected to change as a result of changes in the independent variables.