18) When banks borrow money from the Federal Reserve, A) discount loans. C) fede

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18) When banks borrow money from the Federal Reserve, A) discount loans. C) federal loans. these funds are called B) federal funds. D) Treasury funds 19) The monetary base minus currency in circulation equals 19) A) the borrowed base. C) the nonborrowed base. B) reserves. D) discount loans 20) In the market for neserves, when the federal funds rate is above the interest rate paid on excess 20) reserves, the demand curve for reserves is A) positively sloped. C) negatively sloped. B) horizontal. D) vertical PART 2 (20 Points) Answer 2 of the following 3 questions. Please show your worlk Please use the attached sheets and start each question on a fresh page. Question 1 (a) Explain the Fed's three tools of monetary policy and how each is used to change the money supply (b) Which of the tools is most frequently used and why? Please explain Question 2 Assume that no banks hold excess reserves, and the public holds no currency. If a bank sells a $100 security to the Fed, explain what happens to (a) Reserves (c) Currency (c) Monetary base Question 3 (a) If the required reserve ratio is 10 percent, currency in circulation is $400 billion, checkable deposits are $800 billion, and excess neserves total $0.8 billion, what is the M1 money multiplier? Please show your work (b) Following part (a), if currency in circulation increases to $450 billion (everything else remains the same), what is the M1 money multiplier? Please show your work? Following part (a), if deposites increase to 850 (everything else remains the same), what is the M1 money multiplier? Please show your work?

Explanation / Answer

18. A) Discount loans

Explanation: Commercial banks borrow from the Federal Reserves primarily to meet the reserve requirements using the dicount window. This loans ar epriced at discount rates and called discount loans.

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