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Problem 14-02 algo Assume that the following data describe the current condition of the commercial banking system: Total reserves: Transactions deposits: Cash held by public: Required reserve ratio: Value $70 billion $600 billion $250 billion 0.10 a. How large is the money supply (M1)? b. Are the banks fully utilizing their lending capacity? Banks currently have Now assume that the public deposited another $20 billion in cash in transactions accounts. c. What would happen to the money supply initially (before any lending takes place)? Assuming the $20 billion in cash is not new money in the system, M1 will d. How much would the total lending capacity of the banking system be after this portfolio switch? e. How large would the money supply be if the banks fully utilized their lending capacity? f. What three steps could the Fed take to offset the potential growth in M1? reserve requirements Increase Increase Sell the discount rate bonds $ not change 850 billion 10.0 billion in excess reserves. billion billion

Problem 14-02 algo Assume that the following data describe the current condition of the commercial banking system: Total reserves: Transactions deposits: Cash held by public: Required reserve ratio: Value $70 billion $600 billion $250 billion 0.10 a. How large is the money supply (M1)? b. Are the banks fully utilizing their lending capacity? Banks currently have Now assume that the public deposited another $20 billion in cash in transactions accounts. c. What would happen to the money supply initially (before any lending takes place)? Assuming the $20 billion in cash is not new money in the system, M1 will d. How much would the total lending capacity of the banking system be after this portfolio switch? e. How large would the money supply be if the banks fully utilized their lending capacity? f. What three steps could the Fed take to offset the potential growth in M1? reserve requirements Increase Increase Sell the discount rate bonds $ not change 850 billion 10.0 billion in excess reserves. billion billion

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Please answer “d” and “e” below.

Problem 14-02 algo Assume that the following data describe the current condition of the commercial banking system: Total reserves: Transactions deposits: Cash held by public: Required reserve ratio: Value $70 billion $600 billion $250 billion. 0.10 a. How large is the money supply (M1)? b. Are the banks fully utilizing their lending capacity? Banks currently have Now assume that the public deposited another $20 billion in cash in transactions accounts. c. What would happen to the money supply initially (before any lending takes place)? Assuming the $20 billion in cash is not new money in the system, M1 will d. How much would the total lending capacity of the banking system be after this portfolio switch? e. How large would the money supply be if the banks fully utilized their lending capacity? f. What three steps could the Fed take to offset the potential growth in M1? reserve requirements the discount rate bonds Increase Increase Sell 10 $ 69 not change 850 billion 10.0 billion in excess reserves. billion billion
Transcribed Image Text:Problem 14-02 algo Assume that the following data describe the current condition of the commercial banking system: Total reserves: Transactions deposits: Cash held by public: Required reserve ratio: Value $70 billion $600 billion $250 billion. 0.10 a. How large is the money supply (M1)? b. Are the banks fully utilizing their lending capacity? Banks currently have Now assume that the public deposited another $20 billion in cash in transactions accounts. c. What would happen to the money supply initially (before any lending takes place)? Assuming the $20 billion in cash is not new money in the system, M1 will d. How much would the total lending capacity of the banking system be after this portfolio switch? e. How large would the money supply be if the banks fully utilized their lending capacity? f. What three steps could the Fed take to offset the potential growth in M1? reserve requirements the discount rate bonds Increase Increase Sell 10 $ 69 not change 850 billion 10.0 billion in excess reserves. billion billion
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