Suppose that banks aim to hold reserves equal to 8 per cent of deposits. Also suppose that desired holdings of currency by the non-bank public are 2 per cent of deposits. Calculate the following using the money multiplier model set out in the lectures: a. The simple deposit multiplier b. The money multiplier c. If the central bank supplies an additional $50m of bank reserves, what will be the effect on the total money supply? d. How might a financial panic affect the money multiplier and the deposit multiplier? e. How would you expect the central bank to respond in that situation? Suppose the total money supply is $400bn, and the parameters r and c are the same as in question 3. Calculate the following: a. The monetary base b. The stock of currency held by the non-bank public c. Bank reserves d. What is the effect on the stock of money if the reserve ratio falls to 7 per cent, the currency ratio is unchanged, and the monetary base is held constant?

Suppose that banks aim to hold reserves equal to 8 per cent of deposits. Also suppose that desired holdings of currency by the non-bank public are 2 per cent of deposits. Calculate the following using the money multiplier model set out in the lectures: a. The simple deposit multiplier b. The money multiplier c. If the central bank supplies an additional $50m of bank reserves, what will be the effect on the total money supply? d. How might a financial panic affect the money multiplier and the deposit multiplier? e. How would you expect the central bank to respond in that situation? Suppose the total money supply is $400bn, and the parameters r and c are the same as in question 3. Calculate the following: a. The monetary base b. The stock of currency held by the non-bank public c. Bank reserves d. What is the effect on the stock of money if the reserve ratio falls to 7 per cent, the currency ratio is unchanged, and the monetary base is held constant?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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