Answer the next question on the basis of the following consolidated balance sheet of the commercial banking system. Assume that the reserve requirement is 10%. All figures are in billions.
Assets (billions of dollars) Liabilities & Net Worth (billions of dollars)
Reserves $60 Checkable deposits $600
Securities 140 Stock shares 260
Loans 260 Property 400 Suppose the Fed wants to increase the money supply by $400 billion to drive down interest rates and stimulate the economy. Assuming that the money multiplier is operating to full effect, to accomplish the desired increase, the Fed could _____.
rev: 06_20_2018
Multiple Choice
sell $20 billion of U.S. securities to the banks
buy $20 billion of U.S. securities from the banks
sell $40 billion of U.S. securities to the banks
buy $40 billion of U.S. securities from the banks
