1. Both and are Federal Reserve liabilities A) securities and

ID: 1116181 • Letter: 1

Question

1. Both ________ and ________ are Federal Reserve liabilities

A) securities and loans to financial institutions.

B) currency in circulation and reserves.

C) securities and reserves.

D) currency in circulation and loans to financial institutions.

2. When the Fed buys $100 worth of bonds from a primary dealer, money in the economy should

A) increase by $100. B) increase by more than $100.

C) decrease by $100. D) decrease by more than $100.

1. Both currency in circulation and reserves are Federal Reserve liabilities.

This is because Federal are obliged to pay for the value printed on the currency.

hence option B is the correct answer.

When the Fed buys $100 worth of bonds from a primary dealer, money in the economy should increase by more than $100.

This is because, with the increase in the money supply by $100 in the economy, the money supply creation will be

= multiplier * change in money supply.

Multiplier = 1/ required reserve ratio

Therefore with the increase in the money supply by $100, the money supply will increase by more than $100.

Hence option B is the correct answer.

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.