Answer the Question on the Basis of the Following Consolidated

question 75

Multiple Choice

Answer the question on the basis of the following consolidated balance sheet of the commercial banking system.Assume that the reserve requirement is 10 percent.All figures are in billions and each question should be answered independently of changes specified in any preceding ones. $\begin{array}{c}\begin{array}{lll}\quad\quad\quad\underline{\text { Assets}}\\\text { Reserves}\\\text { Securities}\\\text { Loans}\\\text { Property} \end{array}\begin{array}{l}\\\$ 60 \\140 \\260 \\400 \end{array}\begin{array}{lll}\quad\quad \underline{\text { Liabilities \& Net Worth }}\\\text { Checkable Deposits}\\\text { Stock Shares}\\\\\\\end{array}\begin{array}{lll}\\\$600\\260\\\\\\\end{array}\end{array}$

Refer to the given data.Suppose the Fed bought $20 billion of U.S.securities from the banks.This would:

• A) increase bank reserves to $80 billion,reduce bank-held securities to $120 billion,and,assuming a full money multiplier effect,increase the money supply (checkable deposits)by $200 billion.
• B) increase bank reserves to $80 billion,reduce bank-held securities to $120 billion,and,assuming a full money multiplier effect,decrease the money supply (checkable deposits)by $200 billion.
• C) reduce bank reserves to $40 billion,increase bank-held securities to $160 billion,and,assuming a full money multiplier effect,increase the money supply (checkable deposits)by $200 billion.
• D) reduce bank reserves to $40 billion,increase bank-held securities to $160 billion,and,assuming a full money multiplier effect,decrease the money supply (checkable deposits)by $200 billion.

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Definitions:

Experiment

A scientific procedure undertaken to make a discovery, test a hypothesis, or demonstrate a known fact by controlling and varying one or more variables.

Mutually Exclusive

Events that cannot occur at the same time, implying that the occurrence of one event excludes the occurrence of the other.

Events

Outcomes or occurrences that can be clearly defined, measured, and distinguished from other events in a probability context.

Outcomes

The possible results or consequences of an experiment, procedure, or situation.