6. Assume that the reserve-deposit ratio is 0.09, and the currency-deposit ratio is a 15. What is the value of the money multiplier? O45417 047917 04 OS7368
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![6.
. Assume that the reserve-deposit ratio is 0.09 and the currency-deposit ratio is 0.15. What is the value of the money multiplier?
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- Assume that a bank receives a deposit of $1,000 in cash, puts aside $200 as required reserves, and makes a loan of $800, these transactions imply that: O the money supply by the whole banking system can increase by $1,000. O the money supply by the whole banking system can increase by $4,000. the money supply by the whole banking system can increase by $8,000. O the money supply by the whole banking system can increase by $5,000.16. 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…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 Simple Money Multiplier Money Supply (Percent) (Dollars) 20 10 A higher reserve requirement is associated with a 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%,…
- 2. What “backs" the money supply in the United States? What determines the value (domestic purchasing power) of money? How does the purchasing power of money relate to the price level? Who in the United States is responsible for maintaining money's purchasing power? There is ( no, some ) concrete backing to the money supply in the United States. Paper money, which has ( some, no ) intrinsic value, has value only because people are willing to accept it in exchange for goods and services, including their labor services as employees. And people are willing to accept paper as money because they know that everyone else is also willing to do so. If the monetary authorities were issuing new banknotes at a rate far in excess of available output, the acceptability of paper money would (increase, diminish ). People would start to worry about whether the banknotes would be worth much after they received them. Checks are part of the money supply and ( are, are not) legal tender, but people accept…N7 2. Show 3 rounds of deposits, starting with a $2000 deposit into a checking account at bank A. Assume the required reserve rate is 5% . a. Show the effect at bank A b. Show the effect at bank B C. Show the effect at bank C d. What will be the total increase to the money supply?2. Discuss why fiat money can coexist with other assets that have higher rate of returns.
- 4. What components of money are counted as part of M1? A) currency, M2 and checking accounts. B) currency, travelers' checks, checking accounts and M2 O c. C) C) currency, travelers' checks and checking accounts. D) currency, travelers' checks and money market accounts 10. Explain what will happen to the money multiplier process if there is an increase in the reserve requirement? A) An increase in the reserve requirement means that banks will be less likely to have your money when you demand it, but it would increase the money multiplier B) An increase in the reserve requirement means that banks will be more likely to have your money when you demand it, increasing the money multiplier C) Since a greater portion of each deposit is being lent out, the multiplier will increase. This means more loans lent and more economic growth. D) Since a smaller portion of each deposit is being lent out, the multiplier will decrease. This means fewer loans lent and less economic growth.2. When you discover a $20 bill in your coat pocket that you placed there last winter, you find you were unexpectedly using money as a O medium of exchange. store of value. unit of account. factor of production.Table 29-6. Reserves Loans O $106,000 O $60,000 O $72,000 Assets O $50,200 Bank of Springfield $19,200 228,000 Refer to Table 29-6. Assume the Fed's reserve requirement is 6 percent and that the Bank of Springfield makes new loans so as to make its new reserve ratio 6 percent. From then on, no bank holds any excess reserves. Assume also that people hold only deposits and no currency. Then by what amount does the economy's money supply increase? Deposits Liabilities $240,000
- According to the equation of exchange, if the money supply is $700 million, real GDP is $1,600 million, and nominal GDP is $3,220 million, then the velocity of money is equal to: O 3.5 2.01 2.29 O 5 O 4.61. Suppose that a bank’s customer deposits $20,000 in her checking account. The required reserve ratio is 0.125. What are the required reserves on the new deposit? What is the largest loan that the bank can make on the basis of the new deposit? What is the maximum the banking system can increase demand deposits as a result of this deposit? -------------8. The money multiplier declined significantly during the period 1930–1933 and alsoduring the recent financial crisis of 2008–2010. Yet the M1 money supply decreasedby 25% in the Depression period but increased by more than 20% during the recentfinancial crisis. What explains the difference in outcomes?
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