If the Federal Reserve Purchases $1,000 in Bonds and the Reserve

question 82

Multiple Choice

If the Federal Reserve purchases $1,000 in bonds and the reserve requirement ratio is 0.2,what will be the total change in reserves at all banks assuming there are no excess reserves?

• A) +$500
• B) +$5,000
• C) -$500
• D) -$5,000
• E) +$1,000

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Definitions:

Federal Budget

The annual financial statement presenting the government's proposed revenues and spending for a fiscal year.

U.S. Treasury Securities

U.S. Treasury securities are debt instruments issued by the United States Department of the Treasury to fund government spending activities.

GDP

Gross Domestic Product, the total market value of all final goods and services produced within a country in a given period.

Public Infrastructure

The foundational facilities and systems serving a country, city, or area, including the services and facilities necessary for its economy to function, such as transportation, communication, sewage, water, and electric systems.