16. Suppose that the Federal Reserve conducts an open market operation in which it purchases $100 in US Treasury bonds from a private saver. (a) In an economy without banks, by how much, in dollar terms, will the total money supply increase as a result of this open market operation? (b) In an economy with banks in which all members of the nonbank public immedi- ately deposit all of the currency they receive, but in which all banks engage in 100 percent reserve banking, by how much will the total money supply increase as a result of this open market operation? (c) In an economy with banks, in which all banks choose a 10% reserve ratio and in which all members of the nonbank public immediately deposit all of the currency they receive, by how much will the total money supply increase as a result of this open market operation? (d) In an economy with banks, in which all banks choose a 10% reserve ratio, but in which all members of the nonbank public hold 50% of the funds they receive as currency and deposit the remaining 50%, will the change in the total money supply resulting from this open market operation be greater than or less than the amount you answered for part (c), above?

16. Suppose that the Federal Reserve conducts an open market operation in which it purchases $100 in US Treasury bonds from a private saver. (a) In an economy without banks, by how much, in dollar terms, will the total money supply increase as a result of this open market operation? (b) In an economy with banks in which all members of the nonbank public immedi- ately deposit all of the currency they receive, but in which all banks engage in 100 percent reserve banking, by how much will the total money supply increase as a result of this open market operation? (c) In an economy with banks, in which all banks choose a 10% reserve ratio and in which all members of the nonbank public immediately deposit all of the currency they receive, by how much will the total money supply increase as a result of this open market operation? (d) In an economy with banks, in which all banks choose a 10% reserve ratio, but in which all members of the nonbank public hold 50% of the funds they receive as currency and deposit the remaining 50%, will the change in the total money supply resulting from this open market operation be greater than or less than the amount you answered for part (c), above?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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4. The economy of Baruchville contains 2000 $1 bills. D.) If people hold all money as demand deposits and banks maintain a reserve ratio of 10%, what is the quantity of money? E.) If people hold equal amounts of currency and demand deposits and banks maintain a reserve ratio of 10%, what is the quantity of money?
Bank A:Reserves on hand $38,000Deposit in the Fed $30,000US government bonds $12,000Checking account balances $120,000Savings account balances $25,000Bank B:Reserves on hand $50,000US government bonds $7500Savings account balances $20,000Checking account balances $100,000 In addition, people in this economy hold $8800 in cash, and all banks have the same reserve requirements we've used all semester. Calculate the (economy-wide) currency ratio, carefully following all numeric instructions. Do not convert the ratio into percent. In other words, if you get k of 0.99, enter only 0.99 in the blank.
QUESTION 19 Bank run refers to that O A. the central bank raises the reserve ratio of banks in the time of financial crisis. O B. the central bank runs to bail out banks. O C. many banks' depositors try to withdraw their funds because they fear a bank failure. OD. investment banks and hedge funds lend to each other on very short terms. QUESTION 20 Which of the following is true about the money creation by banks? O A. Money creation is the process of changes in the money supply through depositing and lending in a fractional-reserve banking system. O B. The amount of money as an asset increases, making the economy wealthier. O C. The central bank increases the monetary base. O D. Depositors withdraw funds from banks, holding them in cash.
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8. The reserve requirement, open market operations, and the money supply Consider a system of banking in which the Federal Reserve uses required reserves to control the money supply (as was the case in the United States before 2008). Assume that banks do not hold excess reserves and that households do not hold currency, so the only money exists in the form of demand deposits. To further simplify, assume the banking system has total reserves of $400. Determine the money multiplier as well as the money supply for each reserve requirement listed in the following table. Reserve Requirement (Percent) 20 10 Simple Money Multiplier A higher reserve requirement is associated with a Money Supply (Dollars) money supply. Suppose the Federal Reserve wants to increase the money supply by $200. Maintain the assumption that banks do not hold excess reserves and that households do not hold currency. If the reserve requirement is 10%, the Fed will use open-market operations to U.S. government bonds.…
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1. Microsoft company is considering an investment project which costs $3 million today and it's payoff would be $5 at the end of year 7. If the interest rate is 9%, should Microsoft incest in the new project? 2. Using a graph of money market demonstrate what happens to the value of money and the price level if: a) The Fed sells government bonds in open-market operations. b) A decrease in real GDP decreases the demand for money
Which quotation is irrelevant to the claim in paragraph 1 that "people have confidence that the money will hold its value because their government backs it"? "The Mint was charged with producing the nation's specie in copper, silver, and gold. O For the first 50 years or so, U.S. currency consisted almost entirely of coins." (paragraph 13) "Demand notes could be redeemed for silver or gold coins on demand and were legal tender guaranteed by the federal government." (paragraph 14) O "Most nations today back their own currencies as legal tender." (paragraph 15) O "Paper notes often consist of higher values than coins." (paragraph 15)
1. Suppose that the reserve requirement against deposits is 0%, but that cautious banks voluntarily hold 5% of their deposits in reserve, just in case and that people hold no currency-all money is held in the form of checking deposits. a. Suppose that the Federal Reserve purchases $30,000 worth of government bonds from Ellen (a private citizen), and that Ellen deposits all of the proceeds from the sale into her checking account at Z Bank. Construct a balance sheet, with assets on the left and liabilities on the right, to show how Ellen's deposit creates new assets and liabilities for Z Bank. b. How much of this new deposit can Z Bank lend out? Assume that it lends this amount to George, who then deposits the entire amount into his account at Y Bank. Show this on Y Bank's balance sheet. c. How much of this new deposit can Y Bank lend out? Suppose Joe takes out a loan for this amount from Y Bank and deposits the money into his account at X Bank. Show this on X Bank's balance sheet. d.…
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I only need Help with part (B)
8. Study Questions and Problems #8 Suppose the Federal Reserve's trading desk buys $500,000 in T-bills from a securities dealer, who then deposits the Fed's check in Best National Bank. Assuming that the required reserve ratio is 5%, complete the following table by showing changes in Best National Bank's balance sheet. Best National Bank Assets (Dollars) Reserves: Addendum: Changes in Reserves Actual reserves Required reserves Excess reserves Liabilities (Dollars) Checking deposits: Total liabilities Consider the money multiplier. The maximum increase in the money supply that can result from this open market transaction is