If the Bank of Canada enters the open market and sells $1000 of government securities, what will be the eventual change in the money supply given a 10 percent target reserve ratio in the commercial banking system and a 10 percent cash drain? Increase of $10000. O b. Decrease of $5000. O c. Decrease of $1000. O d Increase of $5000. Decrease of $10000.

If the Bank of Canada enters the open market and sells $1000 of government securities, what will be the eventual change in the money supply given a 10 percent target reserve ratio in the commercial banking system and a 10 percent cash drain? Increase of $10000. O b. Decrease of $5000. O c. Decrease of $1000. O d Increase of $5000. Decrease of $10000.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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1. Subject to the approval of the board of Governors, the decision of choosing the president of a district Federal Reserve bank is made by: A. All 9 district bankers B. The 6 district bank directors elected by the member banks C. 3 district bank directors who are professional bankers D. Class B and Class C directors 2. Assuming initially that the required reserve ratio = 10%, the currency-deposit ratio = 40%, and the excess reserve ratio = 0, a decrease in the required reserve ratio to 5% causes the M1 money multiplier to everything else held constant. A. Increase from 2.8 to 3.11 B. Decrease from 3.11 to 2.8 C. Increase from 2 to 2.22 D. Decrease from 2.22 to 2 %3D
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: O the money supply by the whole banking system can increase by $1,000. O the money supply by the whole banking system can increase by $4,000. the money supply by the whole banking system can increase by $8,000. O the money supply by the whole banking system can increase by $5,000.
What "backs" the money supply of the United States? Multiple Choice O the fact that currency is issued by the Federal Reserve System O the amount of gold the U.S. government has on deposit at its banks O the fact that the intrinsic value of coins in circulation is greater than their face value the U.S. government's ability to keep the value of money relatively stable
1.What is the money multiplier if the target reserve ratio ofbanks is 4%? 2. If the target reserve ratio for a bank is 5%, deposits are $1billion, and loans are $800 million, what are the targetreserves?$50 million•80%$40 million$200 million3. Which measurement of the money in Canada will be the largest? 4. Is there more money or currency in Canada?5.
2. Suppose the required reserve ratio is 11%, currency in circulation is $285 billion, the amount of checkable deposits is $600 billion, and excess reserves are $192 billion. Suppose the central bank is fighting rising inflation. The FOMC wants the money supply to fall by $80 billion. Assuming the ratios you calculated in question 1 are the same, calculate the size of the open market sale that would be needed to cause a change in the money supply of $80 billion.
Northern Bank: Balance Sheet Assets Liabilities Deposits Capital $7,000 $1,000 $8,000 Reserves $420 $7,580 $8.000 Loans Refer to the table above. Assume that Northern Bank's target reserve ratio is 8 percent. In order to achieve its target reserve ratio, Northern Bank must and O A. increase its reserves by $140; decrease its deposits by $140 O B. increase its reserves by $280; increase its loans by $380 OC. increase its reserves by $280; decrease its deposits by $280 O D. increase its reserves by $140; decrease its loans by $140 O E. not change its reserves; not change its deposits
Your bank has the following balance sheet: Assets Liabilities Checkable Reserves $90 million $380 million deposits $130 Securities million Loans $200 million Bank capital $40 million If the required reserve ratio is 20%, what will be the size of this bank (as measured by its total assets or liabilities) after $20 million deposit outflow if it just meets reserve deficiency by taking out a discount loan from the Federal Reserve? $402 million $400 million. OOOO $420 million. $412 million.
Imagine that Odyssey National is a brand new bank, and that its required reserve ratio is 10 percent. If it accepts a $1,000 deposit, then its excess reserve balance will be: O $0. $100. O $90. O $910. O $900.
4. What components of money are counted as part of M1? A) currency, M2 and checking accounts. B) currency, travelers' checks, checking accounts and M2 O c. C) C) currency, travelers' checks and checking accounts. D) currency, travelers' checks and money market accounts 10. Explain what will happen to the money multiplier process if there is an increase in the reserve requirement? A) An increase in the reserve requirement means that banks will be less likely to have your money when you demand it, but it would increase the money multiplier B) An increase in the reserve requirement means that banks will be more likely to have your money when you demand it, increasing the money multiplier C) Since a greater portion of each deposit is being lent out, the multiplier will increase. This means more loans lent and more economic growth. D) Since a smaller portion of each deposit is being lent out, the multiplier will decrease. This means fewer loans lent and less economic growth.
If the Fed sells the U.S. $200 million in government bonds, the total money supply will: O not change. decrease by more than $200 million. O decrease by less than $200 million but more than $0 million. O decrease by exactly $200 million.
Table 29-6. Reserves Loans O $106,000 O $60,000 O $72,000 Assets O $50,200 Bank of Springfield $19,200 228,000 Refer to Table 29-6. Assume the Fed's reserve requirement is 6 percent and that the Bank of Springfield makes new loans so as to make its new reserve ratio 6 percent. From then on, no bank holds any excess reserves. Assume also that people hold only deposits and no currency. Then by what amount does the economy's money supply increase? Deposits Liabilities $240,000
The money multiplier declined significantly during the period 1930-1933 and also during the recent financial crisis of 2008-2010. Yet the M1 money supply decreased by 25% in the Depression period but increased by more than 20% during the recent financial crisis. What explains the difference in outcomes? A. The excess reserves ratio increased rapidly during the recent financial crisis. B. There was a minimal increase in the currency ratio during the recent financial crisis. C. There was a significant increase in the monetary base during the recent financial crisis. OD. The overall level of deposit expansion decreased during the recent financial crisis.