Suppose that the reserve requirement is 8%, the excess reserves-to-deposit ratio is 0.51, andthe currency-to-deposit ratio is 0.34.The value of the money multiplier is 1.44. (Enter your response rounded to two decimal places.)If the Fed conducts an open market operation and buys $10 million worth of bonds from banks, whathappen to the money supply?The money supply willby $ million. (Enter your response rounded to two decimal place

m1(money multiplier)= (1 + (C/D))/[rr + (ER/D) + (C/D)]. Here rr is reserve requirement, C/D is…

Answered: Suppose that the reserve requirement is…

Economics: Private and Public Choice (MindTap Course List)

16th Edition

ISBN:9781305506725

Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

Publisher:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

Chapter13: Money And The Banking System

Section: Chapter Questions

Problem 18CQ

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ou just deposited $4,000 in cash into a checking account at the local bank. Assume that banks lend out all excess reserves and there are no leaks in the banking system. That is, all money lent by banks gets deposited in the banking system. Round your answers to the nearest dollar. If the reserve requirement is 1212%, how much will your deposit increase the total value of checkable bank deposits? $ If the reserve requirement is 44%, how much will your deposit increase the total value of checkable deposits? $ Increasing the reserve requirement the money supply.
Let the reserve requirement be 15 percent for deposits. Assume there are not excess reserves. If the currency demand equals 40 percent of deposits and total reserves equal $60 billion, then an open markey sale of $1.5 billion in government bonds should Reduce the money supply from $160 billion to $156 billion Increase the money supply from $400 billiion to $410 billion Reducce the money supply from $400 billion to $390 bilion Reduce the money supply from $560 billion to $546 billion
Suppose the banking system has a vault cash of GHc1,000 deposit at the central bank of GHc2,000 and demand deposits of Ghc10,000. a. if the reserve requirement is 20 percent, what is the maximum potential increase in the money supply given the banks reserve position? b. If the central bank now purchases GHc500 worth of government bonds from private bond dealers, what are excess reserves of the banking system? ( Assume that the bond dealers deposit the Ghc500 in demand deposit). How much can the banking system increase the money supply given the new reserve position?
Ma3. Hi, I want to ask about Canadian Monetary aggregates, specifically about M2 and M2+. As far as I understand, M2 is M1 + fixed term deposits. I found that M2+ is M2+ TMLs and CUCPs. What exactly is TMLs and CUCPs? Why exactly are there distinction between them (is TMLs and CUCPs greatly different in terms of liquidity to fixed term deposits?)?
n the table below, the money supply, defined by M3, is equal to ........ Currency held by the non-bank public ($ billion) Current deposits at banks ($, billion) Other deposits at banks and other deposits held by other deposit -taking institutions ($, billion) 60 240 1500 Select one: a. 1200 billion b. 1800 billion c. 1500 billion d. 1740 billion
c. Define the term money multiplier? d. Assume that Lucky Bank is required to hold a 10% deposits as reserves, and there is a $3000 increase in demand deposits. Calculate the money multiplier? How much additional new demand deposits couldthe $3,000 deposit support?
5.Suppose there was a banking crisis. The money supply would shrink by the greatest amount if the public ________ their currency-deposit ratio and the banks ________ their reserve-deposit ratioTop of Form decreased; increased increased; decreased decreased; decreased increased; increased
Suppose the banks in an economy have a reserve-deposit ratio of 10 percent and the currencydeposit ratio is 20 percent. c. Critically discuss three financial innovations and their impact on money supply andmoney demand?d. What are your views on the impact financial innovations have had on money supply andmoney demand?
05. Where was paper money used first? O Egypt O Roman Empire O Sweden O China O India 06, Given a reserve requirement ratio of S, what will be the maximum effect on quantity of money in circulation of a Federal Reserve sale of $100,000 worth of government securities directly to a bank? O "an increase of $500,000 O'a decrease of $2,000,000 "a decrease of $500,000" "an increase of $2,000,000 07, Open Market Operations O is the buying and selling of government securities by the Fed. O is a type of transaction on the Stock Exchange. is another name for the free market. "is an ""open air" auction." O is a foreign exchange transaction.
True or False:,1. Economists are not completely in agreement on what constitutes money for all purposes.,2. People use nontransaction accounts primarily because they generally pay higher interest rates than transaction deposits.,3. Most purists would argue that nontransaction deposits are near money assets but not money itself, because they are not a direct medium of exchange.,4. Liquidity refers to the ease with which one asset can be converted into another asset or goods and services.,5. Money market mutual funds have experienced tremendous growth over the last 20 years, but they are not highly liquid assets.,6. M1 is substantially larger than M2.,7. M1 includes currency, checkable deposits, and traveler’s checks, but not savings accounts.,8. People prefer to keep the bulk of their liquid assets as currency or in transaction accounts rather than in the form of savings accounts of various kinds.
Suppose the Fed decided to purchase $100 billion worth of government securities in the open market. Assume all payments are directly deposited into or withdrawn from the banking system. What impact would this action have on the economy? Specifically, answer the following questions. Instructions: Enter your responses as a whole number. a. How will M1 be affected initially? O Decrease by $100 billion O Increase by $100 billion O Not enough information to answer O No initial change to M1 b. By how much will the banking system's lending capacity increase if the reserve requirement is 20 percent? $ billion c. Must interest rates rise or fall to induce investors to utilize this expanded lending capacity? O Rise O Fall d. By how much will aggregate demand initially increase if investors borrow and spend all the newly available credit? $ billion e. Under what circumstances would the Fed be pursuing such an open market policy? O Inflation O Recession f. To attain those same objectives, what…
2. Suppose the public holds 30% of their money as currency and the rest as deposits in their banks. Moreover, the central bank requires banks to maintain a reserve-deposit ratio of 15%. What will be the change in the total money supply if the central bank buys $10 million of government bonds from the public and pays for them by creating money (round to the nearest decimal point)? a. The money supply will decrease by $51.3 million b. The money supply will increase by $51.3 million c. The money supply will increase by $24.7 million d. The money supply will increase by $66.7 million e. All of the answers here are incorrect.

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