7. Changes in the currency ratioRecall the formula for the money supply multiplier:Money Supply Multiplier=1+kktritreswhere k stands for the currency ratio, r, stands for the required reserves ratio, and rex stands for the excess reserves ratio.Which of the following most accurately explains why the currency ratio, k, may decrease?The public is holding less cash per deposit.The public is holding more cash per deposit.The required reserves exceed bank reserves.Suppose (r,+ rex) < 1 and the value of the currency ratio, k, decreases. Then the value of the money supply multiplier willthe percentage change in the numerator is than the percentage change in the denominator.because

Money Supply Multiplier: The money supply multiplier refers to the factor by which an initial…

7. Changes in the currency ratio Recall the formula for the money supply multiplier: Money Supply Multiplier = 1+k ktritres where k stands for the currency ratio, r, stands for the required reserves ratio, and rex stands for the excess reserves ratio. Which of the following most accurately explains why the currency ratio, k, may decrease?

7. Changes in the currency ratio Recall the formula for the money supply multiplier: Money Supply Multiplier = 1+k ktritres where k stands for the currency ratio, r, stands for the required reserves ratio, and rex stands for the excess reserves ratio. Which of the following most accurately explains why the currency ratio, k, may decrease?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Banks in New Transylvania have a desired reserve ratio of 10 percent of deposits and no excess reserves. The currency drain ratio is 50 percent of deposits. Now suppose that the central bank increases the monetary base by $900 billion. How much of the initial amount loaned does not return to the banks but is held as currency? Why does a second round of lending occur? Calculate money multiplier in this example? What is the final increase in the quantity of money? Give typing answer with explanation and conclusion
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8. Consider a hypothetical economy with a nominal GDP of $1.2 trillion, real GDP of $600 billion, and money supply of $60 billion. Suppose commercial banks are required to maintain a reserve requirement of 10% of deposits. Assume that banks do not hold excess reserves. a) Calculate the money multiplier for this economy. If the central bank buys $1 billion of government bonds, what is the effect on money supply? Show your work. b) Using the quantity theory of money, calculate the price level and the velocity of money for this economy prior to central bank action. Show your work. c) Assume that velocity is constant and real GDP increases by 2% each year. What will happen to nominal GDP and the price level next year if money supply does not change? Show your work. d) In (c), what money supply should the central bank set next year to keep the price level unchanged? Show your work. e) In (c), what money supply should the central bank set next year if it wants inflation of 5%? Show your…
Please show equation: If the required reserve ratio (RRR) in the U.S. is 40 percent and Allen gathers $10,000 from cash sales and deposit the money into his U.S. National Bank checking account, then the change in the U.S. money supply should be Answers: A. No change B. A $4,000 increase C. A $15,000 increase D. A $25,000 increase
Suppose the Federal Reserve increases the amount of reserves by $150 million and the total money supply increases by $600 million. Instructions: Enter your answers as a whole number. a. What is the money multiplier? b. Using the money multiplier from part a, how much will the money supply change if the Federal Reserve increases reserves by $40 million? $ million
1. Suppose velocity is 3, real output is 9000, and the price level is 1.5. What is the level of real money balances in this economy? 2. Considered the following data for an economy. Currency in circulation held by the public: CU = 400 dollars; Monetary Base: B = 800 dollars; currency/deposit ratio: cu = 0.25. What is the value of reserves in this economy? 3. Considered the following data for an economy. Currency in circulation held by the public: CU = 400 dollars; Monetary Base: B = 800 dollars; currency/deposit ratio: cu = 0.25. What is the value of the money multiplier in this economy? Please answer the three questions above (and highlight the answer if you can). Please explain the math/reasoning used
Suppose the Federal Reserve increases the amount of reserves by $150 million and the total money supply increases by $750 million. Instructions: Enter your answers as a whole number. a. What is the money multiplier? b. Using the money multiplier from part a, how much will the money supply change if the Federal Reserve increases reserves by $50 million? 2$ million
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to calculate the money multiplier at each of the following values for the reserve requirement. 3. RR = 0 (no reserve is necessary) RR = 0
Question 3) Using the start year (see Column Z) and end year (see Column AA) plot the M1 money supply (see Column AC) and Monetary Base (see Column AD) on the same graph from January of the start year to December of the end year (see Column AB.) Comment on what happened to the money multiplier. Your comment should be included with the graph. Start yearend yearObservation date M1SL AMBSL EXUSEUEXUSALEXCAUS 2002 2012 5/1/2002 1189.3692.7510.917 0.5498 1.5502
4) Listen If the money multiplier decreased from 20 to 4, then the Fed increased the reserve ratio from 5 percent to 8 percent. the Fed increased the fed funds rate from 5 percent to 8 percent. the Fed increased the reserve ratio from 5 percent to 25 percent. the Fed decreased the fed funds rate from 8 percent to 5 percent. Question 30 (1 point) )Listen The FOMC is able to increase the money supply when it buys US government securities. The increase will be larger, the larger is the reserve ratio. buys US government securities. The increase will be larger, the smaller is the reserve ratio. sells US government securities. The increase will be larger, the smaller is the reserve ratio. sells US government securities. The increase will be larger, the larger is the reserve ratio.
6. The simple money multiplier is given as = rr Question: Using the formula for the simple money multiplier, what is multiplier if the required reserve ratio is 15 %? If it is 12.5%?