Answer to Question #30542 in Macroeconomics for rion

Question

RRR is 5%. Loans are deposited in checking accounts. If the Fed sells $1000 of US bonds to a commercial bank. What can we expect to happen?


The money supply will FALL:
A) by $20,000
B) by $1,000


Money supply will INCREASE:
C) by $20,000
D) by $1,000


OR:
E) The money supply will be unchanged

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An economy in which MPC is .95 and RRR is 10%. If imports increase by 15, what is he change in real GDP?


A) -300
B) -150
C) 300
D) Impossible to determine with provided information

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So, I think the answer to #1 is E, and #2 is D.

If I could get any help it would be much appreciated, just trying to understand all of this. Thank you very much for your time!

Answer 1

1.E) The money supply will be unchanged
Because Fed doesn't create new money by selling bonds, so the supply will not
increase or decrease.

2.D) Impossible to determine with provided information because we need such additional info, as price level (or inflation).