c. If the central bank conducts the same policy as in part (b), except chartered banks hold all of these proceeds as excess reserves rather than loan them out, what happens to the amount of excess reserves, the excess reserve ratio, the money supply and the money multiplier?
c. If the central bank conducts the same policy as in part (b), except chartered banks hold all of these proceeds as excess reserves rather than loan them out, what happens to the amount of excess reserves, the excess reserve ratio, the money supply and the money multiplier?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:Suppose that currency in circulation is $1 trillion,
the amount of chequable deposits is $1.2
trillion, excess reserves are $20 billion, and the
desired reserve ratio is 10%.
a. Calculate the money supply, the currency
deposit ratio, the excess reserve ratio, and the
money multiplier.
b. If the central bank conducts an unusually
large open market purchase of bonds of $1.4
trillion following a sharp contraction in the
economy, what is the impact on the money
supply?
c. If the central bank conducts the same policy
as in part (b), except chartered banks hold all of
these proceeds as excess reserves rather than
loan them out, what happens to the amount of
excess reserves, the excess reserve ratio, the
money supply, and the money multiplier?
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