Indicate whether the following statements are true or false. 1. Before 2008 bank
ID: 1117014 • Letter: I
Question
Indicate whether the following statements are true or false.
1. Before 2008 banks typically held sizable excess reserves, but after 2008 commercial banks now hold virtually no excess reserves.
2. If the required reserve ratio and excess reserve to deposit ratios are both constant, then if the public chooses to increase their holdings of currency the official measure of the money supply will increase.
3. An open market purchase of government bonds (securities) by the Fed will increase the money supply but NOT increase the level of reserves of the entire commercial banking system.
Explanation / Answer
1. false
Earlier they held very low reserves. Excess reserves grew from 2008.
2. False
an increase in currency holdings will cause the money supply to fall
3. True
When the govt. wants to incraese the money supply it will buy government bonds but at the same time it doesnt increase the level of reserves.