8. Suppose that: r= required reserve ratio = 0.10 c= (C/D} = currency ratio = 0.25 e = {ER/D} = excess reserve ratio = 0.05 MB = the monetary base = $1,000 billion Given that the formula for the money multiplier is 1+e find the value for M, the money supply. r+.+e The money supply is $. billion. Use the money multiplier to find the new value for the money supply if open market operations increase the monetary base by $200 billion. The money supply is now $ billion. 9a. Lare intended to change the level of reserves and the monetary ba. A. Open market purchases B. Dynamic open market operations c. Open marketsales D. Defensive open market operations 9b. monetary base. are intended to offset movements in other factors that affect reserves and the A. Open market purchases B. Defensive open market operations c. Open marketsales D. Dynamic open market operations 9c. Because most open market operations are typically repurchase agreements, it is likely that the volume of defensive open market operations is (1)_ the volume of dynamic open market operations. (1) less than greater than

8. Suppose that: r= required reserve ratio = 0.10 c= (C/D} = currency ratio = 0.25 e = {ER/D} = excess reserve ratio = 0.05 MB = the monetary base = $1,000 billion Given that the formula for the money multiplier is 1+e find the value for M, the money supply. r+.+e The money supply is $. billion. Use the money multiplier to find the new value for the money supply if open market operations increase the monetary base by $200 billion. The money supply is now $ billion. 9a. Lare intended to change the level of reserves and the monetary ba. A. Open market purchases B. Dynamic open market operations c. Open marketsales D. Defensive open market operations 9b. monetary base. are intended to offset movements in other factors that affect reserves and the A. Open market purchases B. Defensive open market operations c. Open marketsales D. Dynamic open market operations 9c. Because most open market operations are typically repurchase agreements, it is likely that the volume of defensive open market operations is (1)_ the volume of dynamic open market operations. (1) less than greater than

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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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…
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5. Money Multiplier: Given: Money Multiplier: 1+c rr+e+C required reserve ratio = 0.10 C = currency in circulation = $ 400 billion D =_ checkable deposits = $800 billion ER = excess reserve - $0.80 billion M = money supply_(M1) = C + D = $1,200 c = currency ratio = C/D = $400/$800= 0.5 e = excess reserve ratio = ER/D = $.80 b/ $800 b Using the formula for the money multiplier above, derive is the Money Multiplier?
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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
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
H3. The Fed wants to change the reserve requirement ratio in order to increase the money supply (Which is currently $5,000 in demand deposits. There is no currency in this economy and banks hold no excess reserves.) by $500. The money multiplier is currently 5. What is the current reserve requirement ratio and how should the Fed change it? Carefully Explain.
Assume the reserve ratio is 25 percent and there are $40,000 in new deposits in the banking system. As a result, the money-creating potential of the commercial banking system: Hint: Calculate the Monetary Multiplier using reserve requirement ratio= 25% O is $40,000. is $160,000. O is $200.000. is $120,000.
Chapter 16: Reserves = $1,500 First national bank Loaned = $8,500 Chapter 17: Deposits = $10,000 Money Created = Amount x MM 1. If the bank has to maintain a required reeserve ratio of 10% then what is the excess reserve if any? 1/P 2. If the reserve ratio is 10% then what will be money multiplier 3. How much extra money the bank will be able to create with an addtional MS 3/4 # 1/2 0 Total Reserve = Required Reserve + Excess Reserve Money Multiplier = 1/R Where R is Reserve Ratio MD 1. What is the price level at the equilibirum? 2. What is the value of money at the equilibirum? 3. If the velocity is 4, money supply is 100, price level is 10 then what will be the output? MXV=PXY P= Price level Value of Money = 1/P
Assume we have an economy in which banks would hold 25% of their deposits as reserves. Initially, deposits are $7,000 and currency is $1,000. Now the central bank purchases $500 of bonds from the public, using new currency. a) Illustrate the first three rounds of deposit creation, assuming that public would like to continue to hold $1,000 of currency. PLEASE incorporate the fact that the central bank purchases $500 of bonds from the public, using new currency. b) What will money supply ultimately be in this case? c) Repeat the analysis in (a), but now assume that the public would like to hold a constant ratio of currency to deposits. Briefly explain why the two results are different.
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%?
Q.8 “Cash is an important asset.” Which function of money is this statement related to? ((1) medium of exchange; (2) unit of account; or (3) store of value.) Q.9 You transfer $100 dollars from your checking account to your savings account. How much does M1 increase or decrease? How much does M2 increase or decrease? Q.10 If rr = 20%, how large is the money multiplier? If MPC = 0.8, how large is the spending multiplier? Q. 11 The government lends money to firms to buy machines, this policy is related to which factor of economic growth? ((1) natural resources; (2) physical capital; (3) human capital; (4) technology; or (5) institutions.)