1. Assume the Standard Toy Company negotiates a loan for $5,000 from the Metro Bank and receives a demand deposit for that amount in exchange for its promissory note (IOU). As a result of this single transaction: 1. the supply of money declines by the amount of the loan. 2. a claim has been "demonetized." 3. the Metro Bank acquires reserves from other banks. 4. the supply of money is increased by $5,000.
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- BUSN5 CH2 WKSMultiple ChoiceIdentify the choice that best completes the statement or answers the question.1. Define economics.a) a financial and social systemb) the study of a countryâs overall economic issuesc) the integration between consumers, families, and businessesd) the study of the choices that different entities make in allocating resources2. Macroeconomics focuses ona) the major issues facing the national economy, but has little or no relevance to individuals.b) smaller economic units such as individual consumers, families, and individual businesses operating within the economy.c) the major issues facing the national economy that may seem abstract, but directly affect an individualâs day-to-day life. d) the role of government, while microeconomics focuses on the private sector.3. After the collapse of the dot com bubble and the 9/11 terrorist attacks, the stock market depreciated and unemployment increased leading many to fear that the…suppose the required reserve ratio is 5% for all bank . if an individual withdraws $10000 from bank ZIP , what will happen to the money supply in the country (show the multiplier effect) ? (a) the MS will increase by $ 20,000 (b) the MS will increase by $ 2,00,000 (c) the MS will deacrese by $ 2,00,000 (d) the MS will deacrese by $ 10,000A) Explain whether each of the following events increases or decreases the money supply. 1) The State Bank of Pakistan sells bonds in open-market operations. 2) The State Bank of Pakistan increases the reserve requirement. 3) The State Bank of Pakistan reduces the interest rate it pays on reserves. 4) MCB Bank repays a loan it had previously taken from the State Bank of Pakistan. 5) After a rash of pickpocketing, people decide to hold less currency. 6) Fearful of bank runs, bankers decide to hold more excess reserves.
- 1. Beleaguered State Bank (BSB) holds $250 million in deposits and maintains a reserve ratio of 10%Show a T-account for BSB. A.) Now suppose that BSB’s largest depositor withdraws $10 million in cash from her account. If BSB decides to restore its reserve ratio by reducing the amount of loans outstanding, show its new T-account. B.) Explain what effect BSB’s action will have on other banks. C.) Why might it be difficult for BSB to take the action described in part (b)? Discuss another way for BSB to return to its original reserve ratio.11) Which of the following increases the quantity of money? A) an individual's cash withdrawal from a bank B) an individual's purchase of a government security from the Fed C) the Fed's purchase of a government security D) an increase in the government's budget deficit 12) Open market purchases by the Federal Reserve System (the Fed) A) raise the federal funds rate. B) increase bank reserves. C) occur when the Fed wants to decrease the quantity of money. D) All of the above answers are correct. 13) When the Fed raises the federal funds rate, A) net exports increase. B) the value of the dollar falls on the foreign exchange market. C) the value of the dollar rises on the foreign exchange market. D) consumption increases. 14) If the Fed raises the federal funds rate so that the exchange rate rises, then imports ________ and exports ________. A) increase; increase B) increase; decrease C) decrease; increase D)…11 . Let there be $100 new deposit in a bank. a) Calculate the money multiplier for a reserve requirement ratio of 20% for five iterations. Identify the total money created, the total required reserves, and the total excess reserves. b) Assume the currency to deposit ratio is 10%. Recalculate the money multiplier from the previous question a for five iterations. Identify the total money created, the total required reserves, and the total excess reserves. Show your work
- i Peter Kotrodimos puts $100 into his checking account. The reserve requirement for the bank is.20. and the maximum the money supply would After this transaction, demand deposits increased by increase with this transaction would be A) $100; $600 B) $0; $400 $100; $400 D) $100; $50042) An open-market purchase of securities by the Bank of England results in ________ in reserves and ________ in the supply of money. A) an increase; an increase B) a decease; an increase C) an increase; a decrease D) a decrease; a decreaseIf banks decide to hold some of their excess reserves instead of lending them all out, then: A) the money multiplier will be less than 1 divided by the required reserve ratio. B) depositors will have to borrow more in order to increase the money supply. C) the money multiplier becomes 1 divided by the excess reserves. D) a loan of $1 will lead to a change in the money supply by a multiple amount equal to 1 divided by the required reserve ratio.
- 16. A financial institution that accepts deposits, makes loans, and offers checking accounts is A) an insurance company. B) the Federal Deposit Insurance Corporation. C) the Federal Reserve System. D) a commercial bank. 17. Which of the following is an example of a bank's reserves? A) currency held in the vaults of the bank B) demand deposits with other member banks C) U.S. Treasury bills D) U.S. Treasury bonds 18. Suppose the required reserve ratio is 10%. If a bank has total reserves of $80,000 and checkable deposits of $550,000, what is the amount of the bank's required reserves? A) $25,000 B) $55,000 C) $80,000 D) $135,0001. The growth rate of the money supply in a particular year was 8.5%. What was the growth rate of real GDP if the inflation rate in the same year was 4%? 2. During a recession, the Fed enacts countercyclical policy, by changing the quantity of reserves. To fight recession, how will the Fed adjust the quantity of reserves in the market (to S₁ or S₂)? Explain how the Fed can operationalize that. Fed funds rate () S I 1 I I 1 T I 1 1 1 1 I || I I 1 1 1 1 So I I 1 1 I 1 I I 1 1 I 1 1 J I I 1 1 + I I I I 2 D Quantity of reserves 3. Explain why the zero lower bound is a problem for monetary policy. If there's a recession and the Central Bank is at a zero lower bound, what monetary policies can it pursue to stimulate the economy?If total reserves for a bank are $20,000, excess reserves are $15,000, and demand deposits are $100,000, then the money multiplier must be: a)20. b)15. d)10. c)5.