ECONOMICS
MONETARY POLICY
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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nonborrowed reserves minus borrowed reserves.
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nonborrowed reserves plus borrowed reserves.
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required reserves plus borrowed reserves.
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total reserves minus required reserves.
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Detailed explanation-1: -Notes: By definition, nonborrowed reserves are equal to total reserves minus borrowed reserves. Borrowed reserves are equal to the sum of credit extended through the Federal Reserve’s regular discount window programs and credit extended through certain Federal Reserve liquidity facilities.
Detailed explanation-2: -Formulas: Total Reserves = Cash in vault + Deposits at Fed. Excess Reserves are used by banks to: make loans.
Detailed explanation-3: -The quantity of reserves demanded equals: A) required reserves plus borrowed reserves.
Detailed explanation-4: -Key point: in a fractional reserve system, banks create money. new money supply = D + (1-r)D after first bank lending. If say r = 20%, then reserves R = 20% of $1000 = $200. Loans L = $800.