Use the Following to Answer Questions

question 211

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) To collect the $50,000 payment made by Henry, the Fed

• A) adds $50,000 to Jekyll Bank's reserves by $50,000.
• B) subtracts $50,000 from Jekyll Bank's reserves.
• C) accepts the cash from Jekyll Bank which acts on behalf of Henry Hyde.
• D) collects $5,000 (the required reserve portion) from Jekyll Bank.

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Definitions:

Experimental Growth Model

A theoretical construct that uses empirical data to model how quantities grow over time, often nonlinearly.

Population

The entire group of individuals or items that is the subject of a statistical study.

Compounded Monthly

Refers to the process of applying interest to a principal sum so that each month's interest earnings also earn interest in subsequent months.

Effective Yield

Effective yield refers to the total yield an investor receives, in terms of interest or dividends, after the costs of investments are accounted for, often expressed as an annual percentage.