Answered: During the financial crisis, banks…

Economics:

10th Edition

ISBN:9781285859460

Author:BOYES, William

Publisher:BOYES, William

Chapter13: Monetary Policy

Section: Chapter Questions

Problem 8E

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During the financial crisis, banks excess reserves [beyond what is required by regulatory reserve requirements] exploded. If the Federal Reserve Bank of New York purchased $1 billion in U.S. Treasury Bills in this environment and the reserve requirement is 20%, then the change in the total money supply will be approximately:

Group of answer choices

an increase of a bit more than $1 billion.

a decrease of a bit more than $1 billion.

an increase of a bit less than $5 billion.

a decrease of a bit less than $5 billion

Definition Definition Capital reserves held by banks or financial institutions over and above the reserves that are required to be maintained by the regulator toward its liabilities and for internal controls. For commercial banks, excess reserve is the amount over the standard reserve as decided by the central bank. These excess reserve funds are available in the form of cash and cash equivalents.

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