consider the following development which happened at the same time: households reduced their currency holding in favor of bank deposits by $1 million and the Fed purchased a $1 million treasury bill from the U.S. government. what is the immediate or initial effect of these two actions on the money supply (M2)? A)M2 will increase by $1 million. B) M2 will remain the same. C)M2 will decrease by $1 million. D) M2 will increase by $2 million.

consider the following development which happened at the same time: households reduced their currency holding in favor of bank deposits by $1 million and the Fed purchased a $1 million treasury bill from the U.S. government. what is the immediate or initial effect of these two actions on the money supply (M2)? A)M2 will increase by $1 million. B) M2 will remain the same. C)M2 will decrease by $1 million. D) M2 will increase by $2 million.

MACROECONOMICS FOR TODAY

10th Edition

ISBN:9781337613057

Author:Tucker

Publisher:Tucker

Chapter15: Money Creation

Section: Chapter Questions

Problem 10SQP

See similar textbooks

Similar questions

Assume that banks do not hold excess reserves and that households do not hold currency, so the only form of money is demand deposits. To simplify the analysis, suppose the banking system has total reserves of $300. Determine the money multiplier and the money supply for each reserve requirement listed in the following table. A higher reserve requirement is associated with a __larger, smaller__money supply.Suppose the Federal Reserve wants to increase the money supply by $200. Again, you can assume that banks do not hold excess reserves and that households do not hold currency. If the reserve requirement is 10%, the Fed will use open-market operations to ____buy / sell_$___________worth of U.S. government bonds. Now, suppose that, rather than immediately lending out all excess reserves, banks begin holding some excess reserves due to uncertain economic conditions. Specifically, banks increase the percentage of deposits held as reserves from 10% to 25%. This increase in the reserve…
Assume that the banking system has total reserves of Rs.150 billion. Assume also that required reserves are 20 percent of checking deposits and that banks hold no excess reserves and households hold no currency. Calculate the money multiplier? Calculate the money supply? If the State Bank of Pakistan now raises required reserves to 25 percent of deposits, Calculate the money multiplier? What will be the effect on Reserves? (Please write only one word “Increase”, “Decrease”, or “No Change” in the blank) The amount of money supply will decline to (Write a number in the box) Note: Write amount in Billions only and ignore typing % sign for reserve rate
A hypothetical economy is having currency in circulation of $100m, and deposits of $400m. Assume that required reserves are $40m and excess reserves are 60m a) Calculate the monetary base. How much is the money supply? b) Calculate the effect on the money supply of a decrease of currency in circulation by $40m c) What would the central bank do to offset the effects of the decrease in the currency in circulation by $40m?
Most people in the country of Classica tend to keep $3 out of every $100 of their cash holdings in their wallets. The central bank has instructed the commercial banks to also hold 4% of all bank deposits as reserves. Calculate the extended money multiplier Suppose that in 2018 customers deposit $4,000 into their bank accounts. Based on the extended money multiplier calculated in part (i), calculate the total amount which the money supply in the banking system will eventually increase to. Show all steps involved in the calculation.
Assume that the banking system has total reserves of Rs.200 billion. Assume also that required reserves are 12.5 percent of checking deposits and that banks hold no excess reserves and households hold no currency.If the State Bank of Pakistan now raises required reserves to 20 percent of deposits, Calculate the money multiplier? What will be the effect on Reserves? (write only one word “Increase”, “Decrease”, or “No Change” ) The amount of money supply will decline to
For the last time, consider an economy described by the following information: Demand deposits total $200,000 Cash in bank vaults totals $50,000 • The public holds cash of $36,000 US government bonds held by banks total $6,000 Banks' deposits in the Fed total $22,000 Let's say that one bank in the economy has $60 in excess reserves and that there are enough banks in tesal for the full multiplied money creation process to take place. Calculate the amount (the actual amount, not the maximum) that the entire banking system -- all banks working together -- will create in new money, using these ER as your starting point. Carefully follow all numeric directions, including those related to rounding.
In the following table, fill in the column labeled Value of Money. Price Level (P) Value of Money (1/P) 0.80 1.00 1.33 2.00 Now consider the relationship between the quantity of money that people demand and the price level. The higher the price level, the required to complete transactions, and the money people will want to hold in the form of currency or demand deposits. Assume that the Federal Reserve initially fixes the quantity of money supplied at $2.5 billion. VALUE OF MONEY 2.00 Use the orange line (square symbol) to plot the initial money supply (MS₁) set by the Fed. Then, referring to the previous table, use the blue connected points (circle symbol) to graph the money demand curve. 1.79 1.50 1.25 1.00 0.50 Quantity of Money Demanded (Billions of dollars) 2.0 D D 1 2.5 4.0 8.0 2 4 5 QUANTITY OF MONEY (Billions of dollars) According to your graph, the equilibrium value of money is MS, Money Demand therefore the equilibrium price level is Now, suppose that the Fed increases the…
Assume that a bank receives a deposit of $1,000 in cash, puts aside $200 as required reserves, and makes a loan of $800, these transactions imply that: a) the money supply by the whole banking system can increase by $1,000. b) the money supply by the whole banking system can increase by $4,000. c) the money supply by the whole banking system can increase by $8,000.
Suppose a central bank has a required reserve ratio of 6.6% for all banks and the central bank changes reserves at one of these banks by $536. By how much will the money supply change, at most, after all the effects of the money multiplier? (Round this to two digits after the decimal and enter this value as either a positive value or a negative value without the dollar sign.)
Assume that the reserve requirement ratio is 20 percent. Calculate the dollar value of the reserves that the Bank of Uchenna is required to hold. Given the current reserves, calculate the maximum value of additional loans that the Bank of Uchenna can make. Assume that Elike raises $5,000 in cash from a yard sale and deposits the cash in his checking account at the Bank of Uchenna. By how much does the money supply immediately change as a result of Elike’s deposit? Calculate the maximum change in demand deposits in the banking system as a whole resulting from Elike’s deposit. If the Bank of Uchenna is not meeting its reserve requirement, what action can it take to meet the reserve requirement without calling in loans or selling property?
Suppose that you take $150 in currency out of your pocket and deposit it in your checking account. If the required reserve ratio is 9%, what is the largest amount (in dollars) by which the money supply can increase as a result of your action?Include the $150 as part of the new money supply and assume the bank does not hold excess reserves. Give your answer to two decimals
Use simplified money multiplier formula to answer this question. Assume banks do not keep excess reserves. Suppose households $100 bln in cash and $800 bln in bank deposits. Money multiplier in this economy is equal 10.What happens with money supply when households use $10 bln to fund their digital wallets with cash to set up accounts on such platforms as Apple wallet, Google wallet, Samsung wallet, Venmo, and others.