Assume the Fed sells $32,140 worth of U.S. Treasury bonds to the First National Bank. Assumingthat the required reserve ratio is 10.5 percent, then the money supply in the economy willultimately:decrease by a maximum of $32,140.decrease by a maximum of $28,765.decrease by a maximum of $257,120.decrease by a maximum of $306,095.decrease by a maximum of $273,955.

Required reserve ratio is 10.5 % Money multiplier = 1 / Required reserve ratio => Money…

Assume the Fed sells $32,140 worth of U.S. Treasury bonds to the First National Bank. that the required reserve ratio is 10.5 percent, then the money supply in the economy will ultimately: O decrease by a maximum of $32,140. O decrease by a maximum of $28,765. decrease by a maximum of $257,120. decrease by a maximum of $306,095. decrease by a maximum of $273,955.

Assume the Fed sells $32,140 worth of U.S. Treasury bonds to the First National Bank. that the required reserve ratio is 10.5 percent, then the money supply in the economy will ultimately: O decrease by a maximum of $32,140. O decrease by a maximum of $28,765. decrease by a maximum of $257,120. decrease by a maximum of $306,095. decrease by a maximum of $273,955.

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. Suppose that initially the money supply (M1) of the economy is made up of $1,000. a. If people hold all of their money and do not deposit any of it into the bank, what is the size of the money supply? b. Suppose that people deposit the entire $1,000 into their checking account. Assume that the banks have a 100% required reserve ratio. Now what is the size of the money supply? c. Suppose the entire $1,000 is deposited into checking accounts. Now banks have a required reserve ratio of 5%. How large could the money supply become? Show this using the Money Supply and Money Demand model. d. What is the effect on the money supply if the required reserve ratio is changed from 5% to 10% ? Show this using the Money Supply and Money Demand model.
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C) Suppose I live in a hypothetical country, Pandesia, where there is 100% reserve banking. I deposit $1,000 in a checking account at the 1st National Bank of Pandesia. Using the T-account (ie: assets on the left and liabilities on the right), explain whether / how my deposit changes the money supply in Pandesia. Answer D E F and G with the information of C d: Now suppose the Central Bank of Pandesia (CBP) decides that after centuries of 100% reserve banking, it is time for a change and decide to switch the Pandesian banking system to fractional reserve banking. To begin with, board of governors at the CBP agree on a required reserve ratio of 10%. How does my deposit of $1,000 at the 1st National Bank of Pandesia impact the money supply in Pandesia after this change? Explain by using the T-account. e: Next suppose that Pandesian economy enters a recession. To fight against the unemployment created by the recession, CBP decides to expand the Pandesian money supply. To that end,…
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