Assume that a country X has following money market conditions, after the large-scale asset purchases in response to a financial crisis. $850 Billion as currency in circulation; $1200 Billion as total checkable deposits; $2050 Billion as total excess reserves in the banking system. The required reserves ratio = 0.10 (or 10%). Now assume that Central Bank winds up the quantitative easing by conducting large-scale asset sales, which decreases currency, deposits, and excess reserves by $100 Billion, $200 Billion and $2000 Billion respectively. Calculate the new and old money multiplier.
Assume that a country X has following money market conditions, after the large-scale asset purchases in response to a financial crisis. $850 Billion as currency in circulation; $1200 Billion as total checkable deposits; $2050 Billion as total excess reserves in the banking system. The required reserves ratio = 0.10 (or 10%). Now assume that Central Bank winds up the quantitative easing by conducting large-scale asset sales, which decreases currency, deposits, and excess reserves by $100 Billion, $200 Billion and $2000 Billion respectively. Calculate the new and old money multiplier.
Chapter1: Making Economics Decisions
Section: Chapter Questions
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Transcribed Image Text:Assume that a country X has following money
market conditions, after the large-scale asset
purchases in response to a financial crisis.
$850 Billion as currency in circulation;
$1200 Billion as total checkable deposits;
$2050 Billion as total excess reserves in the
banking system.
The required reserves ratio = 0.10 (or 10%).
Now assume that Central Bank winds up the
quantitative easing by conducting large-scale
asset sales, which decreases currency,
deposits, and excess reserves by $100 Billion,
$200 Billion and $2000 Billion respectively.
Calculate the new and old money multiplier.
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