B. Will this increase the monetary base by $10 million, more than $10 million, or less than $10million?C. Will this increase the money supply by $10 million, more than $10 million, or less than $10million? Why?D. Suppose that, when people receive $100, they choose to hold $20 as cash and $80 asdeposits. Also, banks want to hold 5% of deposits as reserves. Calculate the money multiplier,and the increase in the money supply from the Fed's action.E. What happens in the money market in the short run? (Draw a graph, but also explain inwords.)F. What happens in the money market in the long run? 2. Suppose the Fed does an open market purchase of $10 million worth of securities from TDBank. Their assets & liabilities before the purchase are shown below (in millions of dollars):The FedTD BankAssetsLiabilitiesAssetsLiabilities900 (securities)5,000 (currency)30 (TD's reserve. acc.)700 (securities)30 (res. acc. at Fed)550 (deposits)A. How does this affect the Fed's assets & liabilities? How does this affect TD's assets &liabilities? (Use the following table. If you do your work on loose-leaf, just copy the table byhand.)The FedTD BankAssetsLiabilitiesAssetsLiabilities(securities)(currency)(securities)(deposits)(TD's reserve acc.)(reserve acc. at Fed)

The Open Market Operation is one of the quantitative instruments of the monetary policy of the…

B. Will this increase the monetary base by $10 million, more than $10 million, or less than $10 million? C. Will this increase the money supply by $10 million, more than $10 million, or less than $10 million? Why? D. Suppose that, when people receive $100, they choose to hold $20 as cash and $80 as deposits. Also, banks want to hold 5% of deposits as reserves. Calculate the money multiplier, and the increase in the money supply from the Fed's action. E. What happens in the money market in the short run? (Draw a graph, but also explain in words.) F. What happens in the money market in the long run?

B. Will this increase the monetary base by $10 million, more than $10 million, or less than $10 million? C. Will this increase the money supply by $10 million, more than $10 million, or less than $10 million? Why? D. Suppose that, when people receive $100, they choose to hold $20 as cash and $80 as deposits. Also, banks want to hold 5% of deposits as reserves. Calculate the money multiplier, and the increase in the money supply from the Fed's action. E. What happens in the money market in the short run? (Draw a graph, but also explain in words.) F. What happens in the money market in the long run?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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If the Fed makes an open market sale of $1 million of securities to a bank, how do the bank's reserves and excess reserves change? How do bank deposits and the quantity of money change? If the Fed makes an open market sale of $1 million of securities to a bank, the bank's reserves _______. Excess reserves _______. A. increase; increase B. decrease; decrease C. increase; decrease D. decrease; increase Bank deposits _______ and the quantity of money _______. A. increase; decreases B. increase; increases C. decrease; increases D. decrease; decreases
Suppose the reserve requirement is initially set at 15%. Instructions: In parts a and c, round your answers to two decimal places. In parts b and d, round your answers to one decimal place. a. At a reserve requirement of 15%, what is the value of the money multiplier? _____ b. If the reserve requirement is 15% and the Fed increases reserves by $30 billion, what is the total increase in the money supply? ____ c. Suppose the Fed raises the reserve requirement to 18%. What is the value of the money multiplier now? ____ d. Assume the reserve requirement is 18%. If the Fed increases reserves by $30 billion, what is the total increase in the money supply? ____ e. Raising the reserve requirement from 15% to 18% ________ (increase or decrease) the money multiplier and ________ (decrease or increase) the money supply.
Currently the Fed Funds interest rate and the interest rate on reserves are virtually equal to zero. The Fed is anticipated to raise the interest rate it pays on reservessometime this Fall. What would likely happen to the Fed Funds rate if this happens? Draw a diagram of the Fed Funds market. What will happen to the money multiplier?
24. If the economy is at potential output, and the Fed increases the money supply, in the short run, the likely result will be a(n) _____ in investment and a(n) _____ in consumer spending. increase; decrease decrease; increase increase; increase decrease; decrease 26. Suppose that a typical basket of goods is now less expensive than it used to be. All else equal, we would expect: the demand curve for money to shift outward. a downward movement along a fixed money demand curve. the demand curve for money to shift inward. an upward movement along a fixed money demand curve.
Please see attachment and type out the correct answer with proper explanation . Thank you .
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.
Banks in New Transylvania have a desired reserve ratio of 10 percent of deposits and no excess reserves. The currency drain ratio is 50 percent of deposits. Now suppose that the central bank increases the monetary base by $900 billion. How much of the initial amount loaned does not return to the banks but is held as currency? Why does a second round of lending occur? Calculate money multiplier in this example? What is the final increase in the quantity of money? Give typing answer with explanation and conclusion
Explanation it correctly
Give typing answer with explanation and conclusion If the monetary base increases by $1 million and the quantity of money increases by $2.5 million, then the money multiplier is _
8. Consider a hypothetical economy with a nominal GDP of $1.2 trillion, real GDP of $600 billion, and money supply of $60 billion. Suppose commercial banks are required to maintain a reserve requirement of 10% of deposits. Assume that banks do not hold excess reserves. a) Calculate the money multiplier for this economy. If the central bank buys $1 billion of government bonds, what is the effect on money supply? Show your work. b) Using the quantity theory of money, calculate the price level and the velocity of money for this economy prior to central bank action. Show your work. c) Assume that velocity is constant and real GDP increases by 2% each year. What will happen to nominal GDP and the price level next year if money supply does not change? Show your work. d) In (c), what money supply should the central bank set next year to keep the price level unchanged? Show your work. e) In (c), what money supply should the central bank set next year if it wants inflation of 5%? Show your…
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Please show equation: If the required reserve ratio (RRR) in the U.S. is 40 percent and Allen gathers $10,000 from cash sales and deposit the money into his U.S. National Bank checking account, then the change in the U.S. money supply should be Answers: A. No change B. A $4,000 increase C. A $15,000 increase D. A $25,000 increase