The Fed Buys Securities and Gives the Bank a Check

question 11

Multiple Choice

The Fed buys securities and gives the bank a check for the amount. After the check has cleared,

• A) reserves remain unchanged because the increase of reserves at the bank are offset by an increase in reserves at the Fed.
• B) reserves have decreased by the amount of the check because the Fed pays for the check by decreasing the bank's deposits at the Fed.
• C) reserves have increased by the amount of the check because the Fed pays for the check by increasing the amount of the bank's deposits with the Fed.
• D) reserves have increased by the amount of the reserves multiplied by the required reserve ratio, and the quantity of money increases by the difference between the amount of the check and the increase in the reserves.

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Definitions:

Consumption

The act of using goods and services to satisfy needs or wants.

Income

Financial gain derived from various sources such as employment, investments, or proprietorship, contributing to an individual's wealth.

Price

The monetary cost anticipated, called for, or disbursed in payment for an object.

Compensating Variation

An economic concept representing the amount of additional income an individual would need to maintain the same level of utility after a price change.