Question

If the federal reserve sells 50,000 in treasury bonds to a bank at 8% interest what is the immediate effect on the money supply

Answer 1

if the federal reserve sells 50,000 in treasury bonds to a bank at 6% interest, the immediate effect on the money supply would be; the money supply would decrease by $50,000

Explanation:

if the federal reserve sells 50,000 in treasury bonds to a bank at 6% interest, the immediate effect on the money supply would be; the money supply would decrease by $50,000.

The $50,000 will be transferred to the federal reserves and thus not available to be borrowed by the public.

Answer 2

54000

Explanation:

Amount sold by federal reserve in treasury bonds to a bank = 50,000

Interest on treasury bonds =
`8\%`

So, interest charged on treasury bonds =
`8\%* 50000=(8)/(100)* 50000=8* 500=4000`

Immediate effect on money supply :

The immediate effect is that amount of money in bank increases by
`8\%`

Amount of money in bank = Amount sold by federal reserve in treasury bonds to a bank + Interest on treasury bonds = 50000 + 4000 = 54000