Suppose that currency in circulation is $600 billion, the amount of chequable deposits is $900 billion, excess reserves are $15 billion, and the desired reserve ratio is 10%Calculate the money supply, the currency deposit ratio, the excess reserve ratio, and the money multiplier.Suppose the central bank conducts an unusually large open market purchase of bonds held by banks of $1400 billion due to a sharp contraction in the economy. Assuming the ratios you calculated in part (a) are the same, what do you predict will be the effect on the money supply? Calculate new the money supply.

Money base is defined as the entire amount of currency that is in circulation in the hands of people…

Answered: Suppose that currency in circulation is…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Suppose that currency in circulation is $600 billion, the amount of chequable deposits is $900 billion, excess reserves are $15 billion, and the desired reserve ratio is 10%

Calculate the money supply, the currency deposit ratio, the excess reserve ratio, and the money multiplier.
Suppose the central bank conducts an unusually large open market purchase of bonds held by banks of $1400 billion due to a sharp contraction in the economy. Assuming the ratios you calculated in part (a) are the same, what do you predict will be the effect on the money supply? Calculate new the money supply.

Definition Definition Capital reserves held by banks or financial institutions over and above the reserves that are required to be maintained by the regulator toward its liabilities and for internal controls. For commercial banks, excess reserve is the amount over the standard reserve as decided by the central bank. These excess reserve funds are available in the form of cash and cash equivalents.

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