5. The reserve requirement, open market operations, and the money supplyAssume that banks do not hold excess reserves and that households do not hold currency, so the only form of money is checkable deposits. To simplifythe analysis, suppose the banking system has total reserves of $100. Determine the simple deposit multiplier and the money supply for each reserverequirement listed in the following table.Reserve Requirement(Percent)1510Simple Deposit MultiplierA lower reserve requirement is associated with aMoney Supply(Dollars)money supply.Suppose the Federal Reserve wants to increase the money supply by $100. Again, you can assume that banks do not hold excess reserves and thathouseholds do not hold currency. If the reserve requirement is 10%, the Fed will use open-market operations toworth ofU.S. government bonds.Now, suppose that, rather than immediately lending out all excess reserves, banks begin holding some excess reserves due to uncertain economicconditions. Specifically, banks increase the percentage of deposits held as reserves from 10% to 20%. This increase in the reserve ratio causes themultiplier to to Under these conditions, the Fed would need toworth of U.S. government bonds in order toincrease the money supply by $100.Which of the following statements help to explain why, in the real world, the Fed cannot precisely control the money supply? Check all that apply.The Fed cannot control whether and to what extent banks hold excess reserves.The Fed cannot control the amount of money that households choose to hold as currency.The Fed cannot prevent banks from lending out required reserves.

This can be described or allude to the selling and purchasing of depository bills and government…

Assume that banks do not hold excess reserves and that households do not hold currency, so the only form of money is checkable deposits. To simplify the analysis, suppose the banking system has total reserves of $100. Determine the simple deposit multiplier and the money supply for each reserve requirement listed in the following table. Reserve Requirement (Percent) 15 10 Simple Deposit Multiplier A lower reserve requirement is associated with a Money Supply (Dollars) money supply. Suppose the Federal Reserve wants to increase the money supply by $100. Again, you can assume 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 to $ worth of U.S. government bonds.

Assume that banks do not hold excess reserves and that households do not hold currency, so the only form of money is checkable deposits. To simplify the analysis, suppose the banking system has total reserves of $100. Determine the simple deposit multiplier and the money supply for each reserve requirement listed in the following table. Reserve Requirement (Percent) 15 10 Simple Deposit Multiplier A lower reserve requirement is associated with a Money Supply (Dollars) money supply. Suppose the Federal Reserve wants to increase the money supply by $100. Again, you can assume 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 to $ worth of U.S. government bonds.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

See similar textbooks

Similar questions

As a result of the Fed's sale of $3,000 worth of government securities to First Main Street Bank, the bank becomes reserve deficient. Suppose that Nick, a First Main Street Bank's customer, re-pays back the $3,000 loan he took out a few months ago. STEP: 2 of 3 Which of the following most accurately describes First Main Street Bank's actions? The bank keeps the $3,000 as reserves. The bank creates a $42,000 loan. The bank keeps the $450 as reserves. The bank creates a $3,000 loan. The money supply in the economy is $
Suppose that the T-account for The Open Campus National Bank (OCNB) is as follows: Assets Liabilities Reserves $2,000 Loans 7,000 Deposits $9,000 If the central bank requires banks to hold 5% of deposits as reserves, how much in excess reserves does OCNB now hold? If OCNB decides to reduce its reserves to only the required amount, by how much would the economy’s money supply increase?
1) Consider an economy in which banks would like to 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. What will M ultimately be in this case? b) 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.
Homework: Chapter 13 Suppose the economy's entire money supply equals checkable deposits in the amount of $900,000 held in First Main Street Bank. The required reserve ratio is 10% with no excess reserves and no cash leakage. Reserves Loans First Main Street Bank's balance sheet Assets Reserves Loans $810,000 $90,000 Checkable Deposits $900,000 Suppose the Fed sells $3,000 worth of government securities to First Main Street Bank. Complete the following table to reflect the Fed's sale on the balance sheet for First Main Street Bank. Liabilities Assets STEP: 1 of 3 Checkable Deposits O The bank has zero excess reserves. Liabilities Based on its balance sheet, how can you characterise First Main Street Bank? O The bank has $3,000 in excess reserves. O The bank has $81,000 in excess reserves. The bank is reserve deficient.
Assume that banks do not hold excess reserves and that households do not hold currency, so the only form of money is demand deposits. To simplify the analysis, suppose the banking system has total reserves of $200. Determine the money multiplier and the money supply for each reserve requirement listed in the following table. Reserve Requirement Simple Money Multiplier Money Supply (Percent) (Dollars) 25 10
view picture
You are given the following information: Bank deposits (D) 350 Currency-to-deposits ratio (c) 0.20 Required reserve ratio (rr) 0.15 Solve for the monetary base level (B) in this economy. Solve for the level of bank reserves (R) in this economy. Solve for the money supply level (M) in this economy. Suppose there is a sudden rise in the currency-to-deposits ratio, from the original level of 0.2 to a new level of 0.4. If everything else remains unchanged, find the level of monetary base needed to keep money supply fixed at the level you solved for in part c. Continue to consider c=0.4. Find the level of required reserve ratio needed to keep the monetary base and the money supply fixed at the level you solved or in parts a and c, respectively.
Question 2 If reserves increase, banks have the ability to make more loans, which as we have seen would increase the money supply. Suppose the Fed uses open market operations to add $1 million in reserves to the banking system, and all banks keep a ratio of reserves to deposits of 20%. Then according to the money multiplier formula, by how much will the money supply ultimately increase? (Answer in millions, to the nearest .1 million if your answer is not an integer.) Your Answer: Answer D View hint for Question 2 Question 3 (. Chapter 11 mentions that in the past the Fed did not pay interest on accounts that banks kept with it, but that since 2008 it has paid interest on these accounts. Does the Fed paying interest have any effect on the ratio of reserves to deposits that banks choose to hold? Does it increase the reserve ratio, decrease it, or have no effect on it? Explain briefly. (Graded for participation only.)
8) If the reserve requirement on banks is 10 percent, then the money multiplier for the economy is: A) 15 B) 20 C) 1 D) 10 9) Assume that individuals hold no cash and banks hold no excess reserves. The Federal Reserve buys Treasury securities from a bank, and the reserve requirement on banks is 10 percent. As a result of the Federal Reserve's action, the money supply in the economy increases by $5,000. Therefore, the Federal Reserve must have bought _____ of securities from the bank. A) $1000 B) $10 C) $500 D) $100 10) Which of the following institutions insures the deposits in commercial banks, savings banks, and savings and loans institutions? A) National Credit Union Insurance Company B) Federal Reserve C) US Treasury D) Federal Deposit Insurance Corporation THANK YOU SO MUCH FOR HELPING ME!!!!!!
Question 2 is attatched. Asking for an answer for question 4
The following graph shows a hypothetical demand function for federal funds. Currently, the total amount of reserves in the banking system is $50 billion, the discount rate is 3.5 percent, and interest on reserves equals IOR = 1 percent. If demand for federal funds increases by $40 billion, the equilibrium fed funds rate will equal: Federal Funds Rate (FFR) 5.50% 5.00% 4.50% 4.00% 3.50% 3.00% 2.50% 2.00% 1.50% 1.00% 0.50% 0.00% SO $10 O a. FFR = 3.00% Ob. FFR = 3.50% O c. FFR = 4.00% d. FFR = 4.50% Oe. None of the above. $20 $30 $40 $50 $60 570 580 $90 $100 $110 $120 $130 $140 Bank Excess Reserves (SBillion)
One of the major functions of commercial banks is credit creation. Commercial banks create credit by advancing loans and purchasing securities. They lend money to individuals and businesses out of deposits accepted from the public. Commercial banks have to maintain a specified percentage of their deposits as liquidity which is set by the central bank. This reserve requirement controls the extent to which commercial banks can grow money in the economy. Assuming you only have one commercial bank in your economy, a reserve requirement of 20% and an initial deposit of 200. REQUIRED: A. Show for the first four days and the last day the balance sheet of your commercial bank.