(Scenario: Monetary Base and Money Supply) Assume that the required reserve ratio is 20%. If all the excess reserves areloaned out, by how much can money supply increase at the maximum?image 2Bank deposits at the Federal Reserve $300 billionCurrency held by the public$150 billionCurrency in bank vaults (vault cash) $100 billionCheckable bank deposits$600 billion$3,000 billion$1,400 billion$2,000 billion$900 billion (Scenario: Monetary Base and Money Supply) Assume that the required reserve ratio is 20% and the monetary aggregatesare in the table. How much is the monetary base?Bank deposits at the Federal Reserve $300 billionCurrency held by the public$150 billionCurrency in bank vaults (vault cash) $100 billion.Checkable bank deposits$600 billion$750 billion$450 billion$550 billion.$1,150 billionimage 1

Currency in bank vaults : Cash reserve held by the back above the cash reserve ratio is called the…

(Scenario: Monetary Base and Money Supply) Assume that the required reserve ratio is 20%. If all the excess reserves are loaned out, by how much can money supply increase at the maximum? image 2 Bank deposits at the Federal Reserve $300 billion Currency held by the public $150 billion Currency in bank vaults (vault cash) $100 billion Checkable bank deposits $600 billion O $3,000 billion $1,400 billion O $2,000 billion O $900 billion

(Scenario: Monetary Base and Money Supply) Assume that the required reserve ratio is 20%. If all the excess reserves are loaned out, by how much can money supply increase at the maximum? image 2 Bank deposits at the Federal Reserve $300 billion Currency held by the public $150 billion Currency in bank vaults (vault cash) $100 billion Checkable bank deposits $600 billion O $3,000 billion $1,400 billion O $2,000 billion O $900 billion

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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11. Bond prices and interest rates Suppose the following diagram represents the money market in the United States. Assume the money market is currently in equilibrium, as indicated by the grey star. INTEREST RATE (PERCENT) 6.0 5.5 5.0 4.5 4.0 A 3.5 3.0 2.5 2.0 0.6 bonds 0.7 Money Supply 0.8 0.9 1.0 1.1 1.2 QUANTITY OF MONEY (Trillions of dollars) A Current Interest Rate (Yield) = 1.3 Annual Interest Payment Bond Price New Curve Suppose a decrease in nominal incomes causes the demand for money to decrease by $0.2 trillion at every interest rate. Use the green line (triangle symbols) on the previous graph to illustrate the effects of this change. Before the interest rate adjusts, there will be an initial surplus . This means that people who want to sell existing of money in the financial system, causing the demand for bonds to increase can raise the price of their bonds. Money Demand ? To understand how a change in bond prices affects the interest rate, consider the following formula: To…
5.
Suppose the Federal Reserve has set the money supply at $4 million. The table below shows the interest rate and total demand for money. Demand (in millions) Interest Rate 20% 15 10 5 0 $1 2 3 4 5 What is the equilibrium interest rate? Multiple Choice C O 10 percent 20 percent 5 percent O percent < # % & 8888886 $ @ 2 3 4 5 7
2. Consider an economy in which banks are subject to a 5 percent reserve requirement. Assume that banks lend as much as they legally can. (a) What is the money multiplier in this case? (5%) (b) Suppose that Avraam deposits $1,000 in the bank. How much money is created? (5%) 'https://youtu.be/iFDe5kUUyTO
3. (A) Calculate the money multiplier for the following information: the required reserve ratio is 10%, curreney in circulation is $400 billion, checkable deposits are $800 billion. and excess reserves are $0.8 billion.
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5. Suppose the Bank of England (the UK's Central Bank) determines the reserve rate (rr) to be 15% and all banks should follow this rate when lending. (a) Using the fractional-reserve banking theory, calculate how much credit can be created in the UK economy if the initial loan is £300,000 and all created loans are deposited in another bank account and the number of banks involved in this process goes to infinity. (Show all your calculations) (b) Heterodox economists believe that while the theory of fractional-reserve banking brings the creation of credit by banks into the discussion of money supply, the theory suffers from the fact that the money supply is still exogenous. Explain this view through the relation between money supply (M) and the monetary base (H) discussed in the lecture.
The $5-bill in your pocket (Canadian) is: (check all that apply) Select all that apply: O a. A liability for you O b. An asset for the Bank of Canada O C. A liability for the Bank of Canada O d. An asset for no one O e. A liability for no one Of. An asset for you
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6. Eurozone monetary policy True or False: All countries that are part of the eurozone are subject to the monetary policy imposed by the European Central Bank (ECB), and so each participating country has little control over the monetary policy implemented within its borders at any given time. Thus, any participating country must solve local economic problems with its own fiscal policies if an imposed monetary policy is ineffective. True False Consider the countries of Cyprus and Lithuania, both of which are part of the European Union and use the euro as their domestic currency. In 2017, Cyprus had an inflation rate of 0.68%, and Lithuania had an inflation rate of 3.72%. Suppose at the end of 2017, the European Central Bank (ECB) implements a monetary policy designed to slow economic growth in order to reduce inflationary pressure across the Eurozone. Given the inflation rates of Cyprus and Lithuania in 2017, Cyprus would benefit should consider using fiscal policy to solve its local…
7. Critical analysis Q16 Suppose that the Federal Reserve purchases a bond for $300,000 from Reggie Rich, who deposits the proceeds in the Manufacturer's National Bank. Initially, as a result of this bond purchase, the money supply will Suppose the required reserve ratio is 25%. As the result of Rich's deposit, Manufacturer's Bank will be able to extend $ by $ in additional loans. As a result of this purchase by the Fed, the maximum increase in the quantity of checkable deposits that could result throughout the entire banking system is $