Scenario 13.1?Assume the Following Conditions Hold

question 137

Multiple Choice

Scenario 13.1?Assume the following conditions hold.
Now the Federal Reserve engages in an open market operation by purchasing $1 billion worth of government bonds from private bond dealers, who then deposit the $1 billion in the banks. This acts to lower the equilibrium interest rate by 2 percent.
a.At all banks, excess reserves are zero.
b.The deposit expansion multiplier is 3.
c.The investment spending function is as illustrated in the figure below.

-Refer to Scenario 13.1. What is the change in excess reserves following the open market operation by the Fed?

• A) −$3 billion
• B) −$0.67 billion
• C) +$0.67 billion
• D) +$3 billion
• E) +$5 billion

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Market Index

A statistical measure that represents the overall performance of a specific set of stocks or securities.

Wilshire 5000

A stock market index designed to measure the performance of all U.S.-headquartered equity securities with readily available price data.

NAV

Stands for Net Asset Value, which is the value per share of a mutual fund or ETF calculated by dividing the total value of all the securities in the portfolio by the number of shares outstanding.

Income Distributions

Payments made from a fund or account to investors, which can include dividends from stocks or interest from bonds.