Table 13-1 EFFECTS OF AN OPEN MARKET TRANSACTION ON THE BALANCE SHEETS

question 119

Multiple Choice

Table 13-1
EFFECTS OF AN OPEN MARKET TRANSACTION ON THE BALANCE SHEETS OF BANKS AND THE FED (In millions of dollars)



-After the transaction in Table 13-1 is completed, what happens to actual reserves, required reserves, and excess reserves?
Assume the required reserve ratio is 25 percent.

• A)Actual reserves increase by $10 million, required reserves increase $2.5 million, and excess reserves increase by $7.5 million.
• B)Actual reserves decrease by $10 million, required reserves decrease $2.5 million, and excess reserves decrease by $7.5 million.
• C)Actual reserves increase by $10 million, required reserves are unchanged, and excess reserves increase by $10 million.
• D)Actual reserves decrease by $10 million, required reserves decrease by $10 million, and excess reserves are unchanged.

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Definitions:

Net Operating Income

A company's total pre-tax profit, derived from its normal business operations, excluding non-operating income and expenses.

Special Order

Special Order refers to a one-time or unique request by a customer for a product or service that may differ from the standard offerings of a company.

Net Operating Income

A measure of a company's profitability from its core business operations, excluding expenses and revenues from investments and financing.

Variable Costs

Costs that vary directly with the level of production or output, such as materials and labor.