b. What would be the size of the monetary multiplier before the change in the reserve ratio?Instructions: Round your answers to 2 decimal places.10.00What would be the size after the change?6.67c. By how much would the lending potential of the banks decline as a result of the increase in the reserve ratio?Instructions: Enter your answer as an absolute value.< Prev22 of 29Next >MacBook Check my worlRefer to the table below and assume that the Fed's reserve ratio is 10 percent and the economy is in a severe recession. Also supposethat the commercial banks are hoarding all excess reserves (not lending them out) because of their fear of loan defaults. Finally,suppose that the Fed is highly concerned that the banks will suddenly lend out these excess reserves and possibly contribute toinflation once the economy begins to recover and confidence is restored.(1)(2)(3)(4)(5)Reserve Ratio,(6)(7)CheckableActualRequiredReservesExcessMoney-Creating Potential of Money-Creating PotentialSingle Bank, = (5)DepositsReservesReservesof Banking System%D(1) 10$20,000$5,000$2,000$3,000$3,000$30,000(2) 20• 20,0005,0004,0001,0001,0005,000(3) 2520,0005,0005,000(4) 3020,0005,0006,000-1,000-1,000-3,333a. By how many percentage points would the Fed need to increase the reserve ratio to eliminate one-third of the excess reserves?5%< Prev22 of 29Next >MacBook255O75990444024296960

Given, Fed's reserve ratio is 10% and the economy is in a severe recession. From the table, at a…

Answered: b. What would be the size of the…

b. What would be the size of the monetary multiplier before the change in the reserve ratio? Instructions: Round your answers to 2 decimal places. 10.00 What would be the size after the change? 6.67

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

b. What would be the size of the monetary multiplier before the change in the reserve ratio?
Instructions: Round your answers to 2 decimal places.
10.00
What would be the size after the change?
6.67
c. By how much would the lending potential of the banks decline as a result of the increase in the reserve ratio?
Instructions: Enter your answer as an absolute value.
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Check my worl
Refer to the table below and assume that the Fed's reserve ratio is 10 percent and the economy is in a severe recession. Also suppose
that the commercial banks are hoarding all excess reserves (not lending them out) because of their fear of loan defaults. Finally,
suppose that the Fed is highly concerned that the banks will suddenly lend out these excess reserves and possibly contribute to
inflation once the economy begins to recover and confidence is restored.
(1)
(2)
(3)
(4)
(5)
Reserve Ratio,
(6)
(7)
Checkable
Actual
Required
Reserves
Excess
Money-Creating Potential of Money-Creating Potential
Single Bank, = (5)
Deposits
Reserves
Reserves
of Banking System
%D
(1) 10
$20,000
$5,000
$2,000
$3,000
$3,000
$30,000
(2) 20
• 20,000
5,000
4,000
1,000
1,000
5,000
(3) 25
20,000
5,000
5,000
(4) 30
20,000
5,000
6,000
-1,000
-1,000
-3,333
a. By how many percentage points would the Fed need to increase the reserve ratio to eliminate one-third of the excess reserves?
5%
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255O
75990
4440
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