Challenge Problem. Assume that the public in the small country of Sylvania does not hold any cash. Commercial banks, however, hold 7 percent of their checking deposits as excess reserves, regardless of the interest rate. In the questions that follow, the "money multiplier" is given by 1/(RR+ ER), where RR - the percentage of deposits that banks are required to keep as reserves ER - the percentage of deposits that banks voluntarily hold as excess reserves Consider the balance sheet of one of several identical banks: Assets Liabilities and Net Worth Reserves 700 Checking Deposits 2,800 Loans 2,100 Net Worth Total Assets 2,800 Liabilities and Net Worth 2,800 The required reserve ratio in this economy is%. (Enter your response as an integer.),

Challenge Problem. Assume that the public in the small country of Sylvania does not hold any cash. Commercial banks, however, hold 7 percent of their checking deposits as excess reserves, regardless of the interest rate. In the questions that follow, the "money multiplier" is given by 1/(RR+ ER), where RR - the percentage of deposits that banks are required to keep as reserves ER - the percentage of deposits that banks voluntarily hold as excess reserves Consider the balance sheet of one of several identical banks: Assets Liabilities and Net Worth Reserves 700 Checking Deposits 2,800 Loans 2,100 Net Worth Total Assets 2,800 Liabilities and Net Worth 2,800 The required reserve ratio in this economy is%. (Enter your response as an integer.),

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Suppose that the required reserve ratio (rr) is 0.03, the currency ratio (c) is 0.55, and the excess reserve ratio (e) is 0.75. (a) What is the value of the money multiplier? (b) If the monetary base is $1.65 trillion, what will be the size of the money supply (measured as currency in circulation plus checkable deposits)?
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Suppose that you are in an economy with reserve requirements are equal to 15%, and cash drain is equal to 7%. This economy currently has $4,000 total banking deposits in the banking system. All of the banks have zero capital. If the Central Bank lowers the reserve requirements from 15% tp 9%, then what will be the increase in the quantity of total bank deposits in the banking system? Note: round all answers to two decimal places. Do not include currency signs in your answer.
The reserve requirement, open market operations, and the moneysupply Consider a system of banking in which the Federal Reserve uses required reserves to control the money supply (as was the case in the United States before 2008). Assume that banks do not hold excess reserves and that households do not hold currency, so the only money exists in the form of demand deposits. To further simplify, assume the banking system has total reserves of $300. Determine the money multiplier as well as the money supply for each reserve requirement listed in the following table. Reserve Requirement Simple Money Multiplier Money Supply (Percent) 5 (0.5, 1, 5, 10 or 20) (150, 300, 1500, 3000 or 6000) 10 (0.5, 1, 5, 10 or 20) (150, 300, 1500, 3000 or 6000) A higher reserve requirement is associated with a (LARGER or SMALLER) money supply. Suppose the Federal Reserve wants to increase the money supply by $200. Maintain the assumption that banks do not…
Suppose that currency in circulation is $600 billion, the amount of chequable deposits is $900 billion, excess reserves are $15 billion, and the desired reserve ratio ra is 10%. Calculate the money supply, the currency deposit ratio, the excess reserve ratio, and the money multiplier.
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