# Required Reserve Ratio and MPC questions

• May 15th 2013, 01:24 PM
darkseasons
Required Reserve Ratio and MPC questions
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!
• May 15th 2013, 07:56 PM
darkseasons
Re: Required Reserve Ratio and MPC questions
Ok, so I overlooked the first problem! It should be A, because it's 1/.05 = 20(first time around I was doing .5 or 50% :p). Then 20 * 1000 = 20,000 and finally it falls, because the Fed is selling bonds. Any help with the other would be appreciated!