Question 3 – a. Distinguish between legally required reserves and excess reserves. b. Why don’t banks hold a 100 percent reserves? c. How is the amount of reserves bank hold related to the amount of money the banking system creates? d. Assume that Lucky Bank is required to hold a 10% deposits as reserves, and there is a $3000 increase in demand deposits. i. Calculate the money multiplier? ii. How much additional new demand deposits could the $3,000 deposit support?

Question 3 – a. Distinguish between legally required reserves and excess reserves. b. Why don’t banks hold a 100 percent reserves? c. How is the amount of reserves bank hold related to the amount of money the banking system creates? d. Assume that Lucky Bank is required to hold a 10% deposits as reserves, and there is a $3000 increase in demand deposits. i. Calculate the money multiplier? ii. How much additional new demand deposits could the $3,000 deposit support?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

See similar textbooks

Similar questions

Can you accurately answer this question, please? show detailed human working out
Which of the following activities will affect a bank’s required reserves? why? a. The local Girl Scout troop collects coins and currency to buy a new camping stove. The troop deposits $250 in coins and opens a small-time deposit. b. You decide to move $200 from your MMDA to your NOW account. c. You sell your car to the teller at your bank for $5,000. The teller pays with a check drawn on the bank, and you deposit the check immediately into your checking account at the bank
7. What is the required reserve ratio? A) The suggested percentage of total deposits that a bank should keep on reserve B) The legally mandated percentage of total deposits that a bank must keep on reserve. C) The legally mandated percentage of total deposits that a bank must send to the federal reserve bank D) The legally mandated percentage of total deposits that a bank may invest 8. What are excess reserves? A) The amount banks must keep on hand for customers B) Total reserves plus required reserves C) The amount banks can safely invest in high risk activities D) Total reserves minus required reserves
Assume the banking system has $200 billion in demand deposits and $80 billion in reserves. In addition, assume that the required reserve ratio is 25%. Answer the following questions: a. How much excess reserves are in this system? b. What is the value of the money multiplier? c. How much of money supply will be created if the banking system lent out all of its excess reserves?
If banks decide to hold some of their excess reserves instead of lending them all out, then: A) the money multiplier will be less than 1 divided by the required reserve ratio. B) depositors will have to borrow more in order to increase the money supply. C) the money multiplier becomes 1 divided by the excess reserves. D) a loan of $1 will lead to a change in the money supply by a multiple amount equal to 1 divided by the required reserve ratio.
The task I am struggling with: Tracy Williams deposits $500 that was in her sock drawer into a checking account at the local bank. The reserve ratio is 10%. a) how dies the deposit initially change the T-account of the local bank? How does it change the money supply? b) If the bank maintains a reserve ratio of 10%, how will it respond to the new deposit? c) if every time the bank makes a loan, the loan results in a new checkable bank deposit in a different bank equal to the amount of the loan, by how much could the total money supply in the economy expand in response to Tracy´s initial cash deposit of $500? Thank you very much for your help.
QUESTION 8 Let the total amount of currency in the economy be $1,298.4 billion, the total amount of commercial banks' reserves at the Fed be $2,621.2 billion, and the total amount of deposits be $10,647.9 billion. Then money multiplier in this economy is Note: Type in your answer rounded to two decimal places, i.e., your answer must be of the form "999.99". I will not be able to fix correct answers that were entered incorrectly, such as "999.999" or "999,99" or "999". In case the last digit in the correct answer is zero, e.g., "999.90" or "999.00", Blackboard may automatically delete it and you should not do anything about it. In case of percentages, do not type in the percentage symbol "%". If your answer is a negative number, type a dash in front of your answer, i.e, "-999.99".
The people in an economy have $20 million in money. Bank hold 1% of the deposits as reserves. What is the money multiplier in this economy?
Assume that the following data describe the condition of the banking system. Use this information to answer five questions. Total reserves Transactions deposits Cash held by public Reserve requirement Instructions: Enter your responses as a whole number. a. How large is the money supply (M1)? $ billion b. How large are required reserves? $ $ billion $120 billion $800 billion $300 billion 0.10 c. How large are excess reserves? billion d. What is the money multiplier? e. How much is the unused lending capacity? $ billion
3. Suppose the total reserves (RR+ER) in the banking sector is $5 trillion. The central bank has set the required reserve ratio (rr) at 5%. Assuming that the banks prefer to hold zero excess reserves (ER), answer the following questions. a. Calculate the money multiplier. b. What is the total money supply at the end of the deposit expansion process? c. Calculate what would happen to the money supply if the central bank causes the total reserves to increase by $1 trillion.
The people in an economy have $10 million in money. There is only one bank that all the people deposit their money in and it holds 20% of the deposits as reserves. What is the money multiplier in this economy?
The banking system currently has $10 billion of reserves, none of which are excess. People hold only deposits and no currency, and the reserve requirement is 10 percent. If the Fed raises the reserve requirement to 12.5 percent and at the same time buys $1 billion worth of bonds, then by how much does the money supply change? a) It falls by $12 billion. b) It falls by $19 billion. c) It falls by $21 billion. d) It rises by $19 billion.