Table 29-1 Effects of an open-market transaction on the balance sheets of Banks and the Fed (in millions of dollars) Banks Federal Reserve System Assets Liabilities Assets Liabilities Bank Reserves: Reserves: +$20 U.S. Gov't Sec. +$20 +$20 U.S. Gov't Securities:-$20 In Table 29-1, if the required reserve ratio is 5 percent, what will happen to the money supply? Use the oversimplified money multiplier in your calculations. The money supply will not change. The money supply will decrease by $400 million. The money supply will decrease by $100 million. The money supply will increase by $400 million. The money supply will increase by $20 million.

Table 29-1 Effects of an open-market transaction on the balance sheets of Banks and the Fed (in millions of dollars) Banks Federal Reserve System Assets Liabilities Assets Liabilities Bank Reserves: Reserves: +$20 U.S. Gov't Sec. +$20 +$20 U.S. Gov't Securities:-$20 In Table 29-1, if the required reserve ratio is 5 percent, what will happen to the money supply? Use the oversimplified money multiplier in your calculations. The money supply will not change. The money supply will decrease by $400 million. The money supply will decrease by $100 million. The money supply will increase by $400 million. The money supply will increase by $20 million.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Use the Fed and the banking system T-accounts to describe the effects of a Fed sale of $200 million worth of government bonds to bank that pays with part of its reserve held at the Fed. What would be the effect of this transaction on the Fed's monetary liabilities?
Page 4 5. Use the following T-account information and the fact that the required reserve ratio in this economy is 0.10 (i.c., 10 %) to answer the questions below (Show your work) Treasury dd T 20 Bonds 600 Bonds Loans to Fed 300 dd 190 B dd 100 T 20 Banks FRN 200 Public 1500 Loans from Banks 850 Banks Cash 60 dd p 1500 dd p P dd B 190 Other Cash 150 Loans to Deposits 100 Bonds 100 Public 850 Loans from Other Bonds 100 Fed 100 Deposits 100 a. What are the Bank Reserves? b. What are the Bank Required Reserves? c. What are the Bank Excess Reserves? d. What is the current Money Supply (MI)? e. If Banks maximized their Loans to the Public, using up all their excess reserves, what will be the new Money Supply? f. The Fed did not like the new Money Supply and sold 40 in Bonds to Banks. After the banks bought the bonds, they have to call in loans from the public. What will be the new Money Supply end up being after the banks made the required changes? g. If the Banks refused the buy the 40 in…
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Suppose that a lottery winner deposits $5 million in cash into her transactions account at the Bank of America. Assume a reserve requirement of 20 percent and no excess reserves in the banking system prior to this deposit. Show the changes on the Bank of America balance sheet when the $5 million is initially deposited. BANK OF AMERICA - Assets Change in required reserves: _ million Change in excess reserves: million Change in total reserves: million - Liabilities Change in deposits: million
2. Suppose the required reserve ratio is 11%, currency in circulation is $285 billion, the amount of checkable deposits is $600 billion, and excess reserves are $192 billion. Suppose the central bank is fighting rising inflation. The FOMC wants the money supply to fall by $80 billion. Assuming the ratios you calculated in question 1 are the same, calculate the size of the open market sale that would be needed to cause a change in the money supply of $80 billion.
Assume that banks lend out all their excess reserves and individuals deposit all their money. If the Required Reserve Ratio is .14, what will happen to the supply of money if the Fed SELLS $10 billion worth of bonds through an Open Market Operation?
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Policy Perspectives If the price level increases by 0.2 percent for every $100 billion increase in the money supply, by how much might prices rise if the Fed increases total reserves by $100 billion and the reserve requirement is 0.1? Instructions: Round your response to two decimal places.
Total reserves $55 billion Transactions deposits: $600 billion Cash held by public: $400 billion Bonds held by public: $400 billion Stocks held by public: $140 billion Gross domestic product: $8 trillion Interest rate: 6 percent Required reserve ratio: 0.10 How large is the money supply (M1)? How much excess reserves are there? What is the money multiplier? What is the available lending capacity?
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Question: Suppose that currency in circulation is $800 billion, the amount of checkable deposits is $1200 billion, the required reserve ratio is 10% and excess reserves are $12 billion. a. Calculate the money supply, the currency-to-deposit ratio, the excess reserve ratio, and the money multiplier. b. Suppose the central bank conducts an unusually large open market purchase of bonds held by banks of $2000 billion due to a sharp contraction in the economy. Assuming the ratios you calculated in part (a) remain the same, predict the effect on the money supply. c. Suppose the central bank conducts the same open market purchase as in part (b), except that banks choose to hold all of these proceeds as excess reserves rather than loan them out, due to fear of a financial crisis and bank run. Assuming that currency and deposits remain the same, what happens to the amount of excess reserves, the excess reserve ratio, the money supply, and the money multiplier? d. Go to the FRED web site and…