Suppose that currency in circulation is $800 billion, the amount of checkable deposits is $1200 billion, the requiredreserve ratio is 10% and excess reserves are $12 billion. c. Suppose the central bank conducts the same open marketpurchase as in part (b), except that banks choose to hold all of these proceeds as excess reserves rather than loan themout, due to fear of a financial crisis and bank run. Assuming that currency and deposits remain the same, what happensto the amount of excess reserves, the excess reserve ratio, the money supply, and the money multiplier?

The objective of the question is to understand the impact of an open market purchase by the central…

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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2. In a particular economy, currency held by the public is 1,000 shekels, bank reserves are 200 shekels, and the desired reserve-deposit ratio is 0.2. what is the money supply? How is the money supply affected if the central bank prints 100 shekels and uses this new currency to buy government bonds from the public? Assume that the public does not wish to change the amount of currency it holds.
Answer the question on the basis of the following consolidated balance sheet for the commercial banking system. Assume the required reserve ratio is 30 percent. All figures are in billions.Assets:reserves $51loans $109securities $100property $10Liabilities + net worth:checkable deposits $140stock shares $130Refer to the data. The commercial banking system has excess reserves of:$9 billion.$7 billion.$6.1 billion.$5 billion.
Suppose you are the only currency holder in an economy, and you have $220 in currency. What would the money supply be in the following scenarios? [Hint: Use the money multiplier for Fractional Reserve Banking] [Blank 1] You put your $220 under your pillow[Blank 2] You put your $220 in a full reserve banking system[Blank 3] You put your $220 in a fractional reserve banking system where the reserve ratio is 10%[Blank 4] You put your $220 in a fractional reserve banking system where the reserve ratio is 17%
Suppose the desired reserve ratio in Canada is 15%. Assume that the Bank of Canada has decided to increase the total quantity of money in the economy-as measured by M1-by $150 million. The Bank plans to do this by printing Canadian dollars. How much money must the Bank print to increase the money supply by the desired amount? (Calculate your answer in millions of CAD, round it to two decimal places, and write it without units. E.g., write 1.00 for $1 million.)
Assume that banks holds no excess reserves and the public holds no currency: 1. If a bank receives a deposit inflow of $100,000 explain (using t-accounts) what happens to this bank and one additional round in the deposit creation process assuming the reserve requirement is 8%.
The Central Bank Buys $3,000 Worth Of Bonds In The Open Market From JMH Bank. By what amount will JMH Bank’s reserves change before any new loans are made? Explain.
In the hypothetical country of Westlandia, banks are required to hold 20% of checkable deposits as reserves, and the public holds 50% of the loans as currency in circulation and redeposits the remaining 50% percent of the loans. Round Deposits Required Reserves of 20% Excess Reserves New Loans 50% of loan proceeds are held as currency in circulation by people Loan proceeds redeposited 1 $500 100 400 400 200 200 2 400 80 320 320 160 160 3 320 64 256 256 128 128 4 256 51.2 204.8 204.8 102.4 102.4 5 204.8 40.96 163.84 163.84 81.92 81.92 6 163.84 32.76 131.08 131.08 65.54 65.54 7 131.08 26.21 104.87 104.87 52.43 52.43 8 104.87 20.97 83.9 83.9 41.95 41.95 9 83.9 16.77 67.13 67.13 33.56 33.56 10 67.13 13.44 53.69 53.69 26.84 26.84 Totals 2,231.62 446.31 1,785.31 1,785.31 892.19 892.19 In the…
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Assume no change in currency holdings as deposits change. A banking system with target reserve ratio 0.20 starts with no excess reserves. If the central bank purchases $210 in government bonds from commercial banks, what will be the ultimate change in money supply (when banks return to having no excess reserves)? Round to two decimal places and do not enter the $ sign. If your answer is $6.114, enter 6.11. If your answer is $6.115, enter 6.12. If appropriate, remember to enter the - sign.
The Federal Reserve purchases $12 million in U.S. Treasury bonds from a bond dealer, and the dealer's bank credits the dealer's account. The required reserve ratio is 15 percent, and the bank typically lends any excess reserves immediately. Assuming that no currency leakage occurs, calculate how much will the bank be able to lend to its customers following the Fed's purchase. Smillion. (Enter your response rounded to two decimal places.)
Suppose that Maria makes a new cash deposit of $75,000. If the assumptions of the multiplier-deposit expansion process hold, (with the required reserve ratio set at 20%), this deposit will ________(INCREASE /DECREASE) the money supply by $____________ . (Note: Currency held by the public is counted in the money supply as part of M1.)
Suppose People's Bank of China buys 20 billion yuan of government securities from ICBC. Show how the transaction changes the balance sheets by filling in the numbers. People's Bank of China Assets (billions of yuan) Liabilities (billions of yuan) Securities enter your response here Reserves of ICBC enter your response here ICBC Assets (billions of yuan) Liabilities (billions of yuan) Securities enter your response here Reserves enter your response here

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