prior 008.) Assume that banks do not hold excess reserves and that households do not hold currency, so the only form of money is demand deposi mplify the analysis, suppose the banking system has total reserves of $300. Determine the money multiplier and the money supply for each equirement listed in the following table. Reserve Requirement Money Supply (Percent) Simple Money Multiplier (Dollars) 5 20 6,000 10 10 3,000 higher reserve requirement is associated with a smaller money supply. uppose the Federal Reserve wants to increase the money supply by $200. Again, you can assume that banks do not hold excess reserves and ouseholds do not hold currency. If the reserve requirement is 10%, the Fed will use open-market operations to buy S govornmont bonds

prior 008.) Assume that banks do not hold excess reserves and that households do not hold currency, so the only form of money is demand deposi mplify the analysis, suppose the banking system has total reserves of $300. Determine the money multiplier and the money supply for each equirement listed in the following table. Reserve Requirement Money Supply (Percent) Simple Money Multiplier (Dollars) 5 20 6,000 10 10 3,000 higher reserve requirement is associated with a smaller money supply. uppose the Federal Reserve wants to increase the money supply by $200. Again, you can assume that banks do not hold excess reserves and ouseholds do not hold currency. If the reserve requirement is 10%, the Fed will use open-market operations to buy S govornmont bonds

Macroeconomics: Private and Public Choice (MindTap Course List)

16th Edition

ISBN:9781305506756

Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

Publisher:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

Chapter13: Money And The Banking System

Section: Chapter Questions

Problem 18CQ

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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 Extended Money Multiplier = (1+C/D) / (R/D+C/D) (1+0.03) / (0.04+0.03) = 14.71 The extended money multiplier is 14.71 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.
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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 $500. 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) (Dollars) 5 10 A lower reserve requirement is associated with a money supply. Suppose the Federal Reserve wants to increase the money supply by $200. Maintain the assumption 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 worth of U.S. government…
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 $500. Determine the money multiplier as well as the money supply for each reserve requirement listed in the following table. Reserve Requirement (Percent) 5 10 Simple Money Multiplier A higher reserve requirement is associated with a Money Supply (Dollars) money supply. Suppose the Federal Reserve wants to increase the money supply by $100. Maintain the assumption 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 worth of U.S. government bonds. Now, suppose that, rather than immediately lending out all excess…
Bank Balance Sheet Assets Liability and Equity Required Reserves: $ 0.30 million Deposits: $ 1.50 million Excess Reserves: $ 1.80 million Equity: $ 1.50 million Government Bonds: $ 0.90 million Remember, new money creation has a multiplier effect. That means that our desired $6 million increase in the money supply doesn't require us to buy a full $6 million in bonds from banks. Further, our analysis indicates that as long as banks in our economy can make loans, they will -- in other words, they won't choose to hold excess reserves instead of lending them out. Let's say we decide to transact with Typical Bank again, and remember that the required reserve ratio is 0.2. To increase the money supply by $6 million, how much should we increase Typical Bank's excess reserves? _____ million
Suppose the money supply (as measured by checkable deposits) is currently $300 billion. The required reserve ratio is 20%. Banks hold $60 billion in reserves, so there are no excess reserves. The Federal Reserve (“the Fed”) wants to decrease the money supply by $17.5 billion, to $282.5 billion. It could do this through open-market operations or by changing the required reserve ratio. Assume for this question that you can use the simple money multiplier. If the Fed wants to decrease the money supply using open-market operations, it should ___ (buy or sell) $_____ (fill in blank) billion worth of U.S. government bonds. If the Fed wants to decrease the money supply by adjusting the required reserve ratio, it should ________ (increase or decrease) the required reserve ratio.
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 $100. Determine the money multiplier as well as the money supply for each reserve requirement listed in the following table. Reserve Requirement (Percent) 15 10 Simple Money Multiplier Money Supply (Dollars) A lower reserve requirement is associated with a money supply. Suppose the Federal Reserve wants to increase the money supply by $100. Maintain the assumption 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 $ worth of U.S. government bonds. Now, suppose that, rather than immediately lending out all excess…
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 $100. Determine the money multiplier as well as the money supply for each reserve requirement listed in the following table. Reserve Requirement (Percent) 25 10 Simple Money Multiplier A lower reserve requirement is associated with a Money Supply (Dollars) money supply. Suppose the Federal Reserve wants to increase the money supply by $100. Maintain the assumption 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 U.S. government bonds. S worth of Now, suppose that, rather than immediately lending out all excess…
Suppose the reserve requirement is 8% and a new deposit of $900 billion is made into the banking system. Create T accounts to analyze the following questions. a) Initially, reserves would increase by? b) Required reserves would increase by? c) Excess reserves would increase by? d) The first round of loans would amount to? e) The second round of loans would amount to approximately? f) The third round of loans would amount to approximately? g) For the entire macroeconomy, after the infinite rounds of loans were taken into account, money supply would increase by? h) If the Federal Reserve bought bonds worth $600 billion, money supply would increase by? i) If the Federal Reserve sold bonds worth $600 billion, money supply would decrease by?
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.