Session 6: Economics: Monetary and Fiscal Economics
Reading 24: Money, the Price Level, and Inflation
LOS h: Explain interest rate determination and the short-run and long-run effects of money on real GDP.
If firms and households decide to reduce their currency holdings and increase their holdings of funds in their checking accounts by an equal amount, what will be the impact on the money supply if the U.S. Federal Reserve does not undertake any offsetting actions?
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A) |
There will be no direct impact on the money supply, however, banks’ excess reserves will decrease, which will cause them to decrease their loans, thereby leading to an indirect decrease in the money supply. | |
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B) |
There will be no direct or indirect impact on the money supply because the decrease in currency holdings will be exactly offset by the increase in the funds in the checking accounts. | |
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C) |
There will be no direct impact on the money supply. However, banks’ excess reserves will increase, which will enable them to increase their loans, thereby leading to an indirect increase in the money supply. | |
If firms and households decide to reduce their currency holdings and increase their holdings of funds in their checking accounts by an equal amount, there will be no direct impact on the money supply. Nevertheless, the resulting increase in excess reserves will enable banks to increase their loans, thereby leading to an indirect increase in the money supply through the multiplier effect. Putting money in a checking account increases, not decreases, bank reserves. | 
发表于 2011-3-9 12:38
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