a. Use this information to calculate the money multiplie. b. How would your answers to part (a) change if banks become concerned about risks inxolved in making loans and now choose to hold 20% of checking account deposits as excess, reserves (e=0.20)? Compute the new value of the money multiplier. %3D c. Starting from part (a) what happens to money multiplier if people decide to hold more CHTENCY, resulting in an increase in currency-deposit from c = 0.5 to c = 0.8? d. If the Fed conducts open market operations and buys $100 million in Treasury bonds from banks, what will happen to money supply using the multipliers in part (a), (b), and part

a. Use this information to calculate the money multiplie. b. How would your answers to part (a) change if banks become concerned about risks inxolved in making loans and now choose to hold 20% of checking account deposits as excess, reserves (e=0.20)? Compute the new value of the money multiplier. %3D c. Starting from part (a) what happens to money multiplier if people decide to hold more CHTENCY, resulting in an increase in currency-deposit from c = 0.5 to c = 0.8? d. If the Fed conducts open market operations and buys $100 million in Treasury bonds from banks, what will happen to money supply using the multipliers in part (a), (b), and part

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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1.6 Suppose that the required reserve ratio is 2 percent, and you deposit $100,000 of currency into Chase Bank. What is the potential increase in deposits in the banking system brought about by your deposit? What is the potential change in the money supply? rese hy is the real-world depos where RR is the required
What is the ratio of reserves to deposits that a bank finds prudent to hold? Describe the situation in which a bank has $10 million in actual reserves and $8 million in desired reserves. The ratio of reserves to deposits that a bank finds prudent to hold is its _______. When a bank has $10 million in actual reserves and $8 million in desired reserves, it has _______. A. desired deposit ratio; a shortage of deposits B. desired reserve ratio; surplus reserves C. desired reserve ratio; insufficient reserves D. planned reserve ratio; a currency drain
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.…
6. The reserve requirement, open market operations, and the moneysupply 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 $300. Determine the money multiplier as well as the money supply for each reserve requirement listed in the following table. Reserve Requirement (Percent) 5 10 Simple Money Multiplier 20 10 A higher reserve requirement is associated with a smaller Money Supply (Dollars) 6,000 3,000 ▼ to 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…
(a) Elaborate the FIVE (5) factors that determine the money multiplier.(b) Suppose Bank Negara Malaysia sells RM100 million of bonds to Bank A. By usinga T-accounts, illustrate what happens to the reserves and the monetary base. Please give explanation in details with example.
Challenge Problem. Assume that the public in the small country of Sylvania does not hold any cash. Commercial banks, however, hold 7 percent of their checking deposits as excess reserves, regardless of the interest rate. In the questions that follow, the "money multiplier" is given by 1/(RR+ ER), where RR - the percentage of deposits that banks are required to keep as reserves ER = the percentage of deposits that banks voluntarily hold as excess reserves Consider the balance sheet of one of several identical banks: Assets Liabilities and Net Worth Reserves 700 Checking Deposits 2,800 Loans 2,100 Net Worth Total Assets 2,800 Liabilities and Net Worth 2,800 The required reserve ratio in this economy is %. (Enter your response as an integer.)
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I’m confused on all three please help!
Monetary policy: Demand for and supply of money in the money market is shown in diagram below. Th Fed intends to decrease the money supply from the current $60 million. a) How would the Fed use Open Market Operations to achieve this goal? b) If required reserve ratio is set at 3.9% calculate the money multiplier.. c) Using the Open Market Operations, and assuming money multiplier to be 10.15, by how much should should bank reserves change in order to decrease the money supply by $20 million, from $60 million to $40 million? d) Would a successful open market operation increase or decrease the interest rate? e) Briefly explain your answer to part d. INTEREST RATE (Percent) 18 15 12 9 9 3 0 0 20 Money Supply Money Demand 40 60 80 MONEY Dollar Millions 100 120 K
1. Why does the public want to hold some of its wealth as money? Answer the following: (a) What is the basic determinant of the transactions demand? The level of_ - The higher this level, the ( smaller, greater) the amount of money demanded for transactions. (b) the asset demand for money? The level of - The higher this level, the (smaller, greater ) the amount of money demanded as an asset.
Reserves, Deposits and the Money Multiplier If the money multiplier is 25, then the required reserve ratio (RR) is ________. (Round to the nearest tenth when appropriate.) Select one: A. 1.3% B. 4% C. 12.5% D. 25%
Suppose the reserve requirement is 8% and a new deposit of $900 billion is made into the banking system. Create T accounts to analyze the following questions. a) Initially, reserves would increase by? b) Required reserves would increase by? c) Excess reserves would increase by? d) The first round of loans would amount to? e) The second round of loans would amount to approximately? f) The third round of loans would amount to approximately? g) For the entire macroeconomy, after the infinite rounds of loans were taken into account, money supply would increase by? h) If the Federal Reserve bought bonds worth $600 billion, money supply would increase by? i) If the Federal Reserve sold bonds worth $600 billion, money supply would decrease by?