The money supply of the economy.

Question

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Answer 1

Question

Chapter 11, Problem 11PA

Subpart (a):

To determine

The money supply of the economy.

Subpart (a):

Expert Solution

Explanation of Solution

The Federal Reserve is the central bank of the US economy, and it is usually known as the Fed. The Fed has the responsibility to keep the economy controlled from the fluctuations, and it has to control the money supply of the economy through its monetary policies. When the purchase of the government bonds from the public takes place, it will provide the money to the public, which will increase the consumption of the economy. As a result of the multiplier effect, the money supply in the economy will increase by the multiplier times.

It is given that the economy contains 2,000 bills that have a value of $1 each. So, the total reserves of the economy are the summation of all the bills and it is $2,000. When there is no deposit and people hold all the money with them, the banks will have nothing to provide loans, and there will be no new money created in the economy. Thus, the total quantity of money in the economy is equal to $2,000 itself.

Economics Concept Introduction

Concept introduction:

Money: It is any item that is accepted as the payment for the goods and services by the economy.

Banks: They are the financial institutions that accept the deposits of money from the general public and use this money to provide loans to the public.

Fed: It is the central bank of the US, and it has the responsibility of controlling the economy.

Subpart (b):

To determine

The money supply of the economy.

Subpart (b):

Expert Solution

Explanation of Solution

The banks hold all the deposits as the excess reserves and people deposit all the currency with the banks, then the total deposits with the bank becomes $2,000, and since no loan is provided by the banks, the total reserves of the economy remain the same, which means that the total quantity of money in the economy remains as $2,000 itself. No new money is created.

Economics Concept Introduction

Concept introduction:

Money: It is any item that is accepted as the payment for the goods and services by the economy.

Banks: They are the financial institutions that accept the deposits of money from the general public and use this money to provide loans to the public.

Fed: It is the central bank of the US, and it has the responsibility of controlling the economy.

Subpart (c):

To determine

The money supply of the economy.

Subpart (c):

Expert Solution

Explanation of Solution

In the case when people hold $1,000 with them and deposits the remaining $1,000 with the banks where the banks maintain 100 percent reserves and nothing is provided as loans to the public, there will be no new currency generated and thus the total quantity of money in the economy will be the summation of the currency held by the public and the currency held by the banks. Thus, it remains the same $2,000.

Economics Concept Introduction

Concept introduction:

Money: It is any item that is accepted as the payment for the goods and services by the economy.

Banks: They are the financial institutions that accept the deposits of money from the general public and use this money to provide loans to the public.

Fed: It is the central bank of the US, and it has the responsibility of controlling the economy.

Subpart (d):

To determine

The money supply of the economy.

Subpart (d):

Expert Solution

Explanation of Solution

In the case when the banks have only 10 percent reserves and use the remaining to provide loans to the public, there will be a multiplier effect on the money supply and the multiplier value can be calculated as follows:

Money multiplier=1Reserve ratio=10.10=10

So, the value of the money multiplier in the economy is 10. Thus, when the people hold all the money as demand deposits with the banks, the banks use the money to create new money. Thus, the total money supply increases by the multiplier times, which can be calculated as follows:

Total money supply=Reserves × Multiplier value=2,000×10=20,000

Thus, the total money supply in the economy will be $20,000.

Economics Concept Introduction

Concept introduction:

Money: It is any item that is accepted as the payment for the goods and services by the economy.

Banks: They are the financial institutions that accept the deposits of money from the general public and use this money to provide loans to the public.

Fed: It is the central bank of the US, and it has the responsibility of controlling the economy.

Subpart (e):

To determine

The money supply of the economy.

Subpart (e):

Expert Solution

Explanation of Solution

In the case when the people hold equal amount of currency with them and with the bank

as demand deposits, since the reserve requirement ratio is 10 percent, in order to calculate the quantity of money, the following two equations must be satisfied:

Cash held by public (C)=Deposits held with banks (D)−−−−−−(1)

and 10 ×($2,000−C)=D ------(2)

We can substitute the first equation in the second equation as follows:

10 ×($2,000−C)=D20,000−10D=D20,000=11DD=20,00011=1818.18

Thus, the deposits held with the banks are $1818.18. Since the public hold equal money with them and with the banks, the people will hold the same quantity with them which is $1818.18. Thus, the total quantity of money can be calculated by summating the two as follows:

Total quantity of money=Currency held by people (C)+Deposits with banks (D)=1818.18+1818.18=3636.36

Thus, the total quantity of money in the economy is equal to $3636.36.

Economics Concept Introduction

Concept introduction:

Money: It is any item that is accepted as the payment for the goods and services by the economy.

Banks: They are the financial institutions that accept the deposits of money from the general public and use this money to provide loans to the public.

Fed: It is the central bank of the US, and it has the responsibility of controlling the economy.

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Answer 2

Question

Chapter 11, Problem 11PA

Subpart (a):

To determine

The money supply of the economy.

Subpart (a):

Expert Solution

Explanation of Solution

The Federal Reserve is the central bank of the US economy, and it is usually known as the Fed. The Fed has the responsibility to keep the economy controlled from the fluctuations, and it has to control the money supply of the economy through its monetary policies. When the purchase of the government bonds from the public takes place, it will provide the money to the public, which will increase the consumption of the economy. As a result of the multiplier effect, the money supply in the economy will increase by the multiplier times.

It is given that the economy contains 2,000 bills that have a value of $1 each. So, the total reserves of the economy are the summation of all the bills and it is $2,000. When there is no deposit and people hold all the money with them, the banks will have nothing to provide loans, and there will be no new money created in the economy. Thus, the total quantity of money in the economy is equal to $2,000 itself.

Economics Concept Introduction

Concept introduction:

Money: It is any item that is accepted as the payment for the goods and services by the economy.

Banks: They are the financial institutions that accept the deposits of money from the general public and use this money to provide loans to the public.

Fed: It is the central bank of the US, and it has the responsibility of controlling the economy.

Subpart (b):

To determine

The money supply of the economy.

Subpart (b):

Expert Solution

Explanation of Solution

The banks hold all the deposits as the excess reserves and people deposit all the currency with the banks, then the total deposits with the bank becomes $2,000, and since no loan is provided by the banks, the total reserves of the economy remain the same, which means that the total quantity of money in the economy remains as $2,000 itself. No new money is created.

Economics Concept Introduction

Concept introduction:

Money: It is any item that is accepted as the payment for the goods and services by the economy.

Banks: They are the financial institutions that accept the deposits of money from the general public and use this money to provide loans to the public.

Fed: It is the central bank of the US, and it has the responsibility of controlling the economy.

Subpart (c):

To determine

The money supply of the economy.

Subpart (c):

Expert Solution

Explanation of Solution

In the case when people hold $1,000 with them and deposits the remaining $1,000 with the banks where the banks maintain 100 percent reserves and nothing is provided as loans to the public, there will be no new currency generated and thus the total quantity of money in the economy will be the summation of the currency held by the public and the currency held by the banks. Thus, it remains the same $2,000.

Economics Concept Introduction

Concept introduction:

Money: It is any item that is accepted as the payment for the goods and services by the economy.

Banks: They are the financial institutions that accept the deposits of money from the general public and use this money to provide loans to the public.

Fed: It is the central bank of the US, and it has the responsibility of controlling the economy.

Subpart (d):

To determine

The money supply of the economy.

Subpart (d):

Expert Solution

Explanation of Solution

In the case when the banks have only 10 percent reserves and use the remaining to provide loans to the public, there will be a multiplier effect on the money supply and the multiplier value can be calculated as follows:

Money multiplier=1Reserve ratio=10.10=10

So, the value of the money multiplier in the economy is 10. Thus, when the people hold all the money as demand deposits with the banks, the banks use the money to create new money. Thus, the total money supply increases by the multiplier times, which can be calculated as follows:

Total money supply=Reserves × Multiplier value=2,000×10=20,000

Thus, the total money supply in the economy will be $20,000.

Economics Concept Introduction

Concept introduction:

Money: It is any item that is accepted as the payment for the goods and services by the economy.

Banks: They are the financial institutions that accept the deposits of money from the general public and use this money to provide loans to the public.

Fed: It is the central bank of the US, and it has the responsibility of controlling the economy.

Subpart (e):

To determine

The money supply of the economy.

Subpart (e):

Expert Solution

Explanation of Solution

In the case when the people hold equal amount of currency with them and with the bank

as demand deposits, since the reserve requirement ratio is 10 percent, in order to calculate the quantity of money, the following two equations must be satisfied:

Cash held by public (C)=Deposits held with banks (D)−−−−−−(1)

and 10 ×($2,000−C)=D ------(2)

We can substitute the first equation in the second equation as follows:

10 ×($2,000−C)=D20,000−10D=D20,000=11DD=20,00011=1818.18

Thus, the deposits held with the banks are $1818.18. Since the public hold equal money with them and with the banks, the people will hold the same quantity with them which is $1818.18. Thus, the total quantity of money can be calculated by summating the two as follows:

Total quantity of money=Currency held by people (C)+Deposits with banks (D)=1818.18+1818.18=3636.36

Thus, the total quantity of money in the economy is equal to $3636.36.

Economics Concept Introduction

Concept introduction:

Money: It is any item that is accepted as the payment for the goods and services by the economy.

Banks: They are the financial institutions that accept the deposits of money from the general public and use this money to provide loans to the public.

Fed: It is the central bank of the US, and it has the responsibility of controlling the economy.

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Answer 3

Question

Chapter 11, Problem 11PA

Subpart (a):

To determine

The money supply of the economy.

Subpart (a):

Expert Solution

Explanation of Solution

The Federal Reserve is the central bank of the US economy, and it is usually known as the Fed. The Fed has the responsibility to keep the economy controlled from the fluctuations, and it has to control the money supply of the economy through its monetary policies. When the purchase of the government bonds from the public takes place, it will provide the money to the public, which will increase the consumption of the economy. As a result of the multiplier effect, the money supply in the economy will increase by the multiplier times.

It is given that the economy contains 2,000 bills that have a value of $1 each. So, the total reserves of the economy are the summation of all the bills and it is $2,000. When there is no deposit and people hold all the money with them, the banks will have nothing to provide loans, and there will be no new money created in the economy. Thus, the total quantity of money in the economy is equal to $2,000 itself.

Economics Concept Introduction

Concept introduction:

Money: It is any item that is accepted as the payment for the goods and services by the economy.

Banks: They are the financial institutions that accept the deposits of money from the general public and use this money to provide loans to the public.

Fed: It is the central bank of the US, and it has the responsibility of controlling the economy.

Subpart (b):

To determine

The money supply of the economy.

Subpart (b):

Expert Solution

Explanation of Solution

The banks hold all the deposits as the excess reserves and people deposit all the currency with the banks, then the total deposits with the bank becomes $2,000, and since no loan is provided by the banks, the total reserves of the economy remain the same, which means that the total quantity of money in the economy remains as $2,000 itself. No new money is created.

Economics Concept Introduction

Concept introduction:

Money: It is any item that is accepted as the payment for the goods and services by the economy.

Banks: They are the financial institutions that accept the deposits of money from the general public and use this money to provide loans to the public.

Fed: It is the central bank of the US, and it has the responsibility of controlling the economy.

Subpart (c):

To determine

The money supply of the economy.

Subpart (c):

Expert Solution

Explanation of Solution

In the case when people hold $1,000 with them and deposits the remaining $1,000 with the banks where the banks maintain 100 percent reserves and nothing is provided as loans to the public, there will be no new currency generated and thus the total quantity of money in the economy will be the summation of the currency held by the public and the currency held by the banks. Thus, it remains the same $2,000.

Economics Concept Introduction

Concept introduction:

Money: It is any item that is accepted as the payment for the goods and services by the economy.

Banks: They are the financial institutions that accept the deposits of money from the general public and use this money to provide loans to the public.

Fed: It is the central bank of the US, and it has the responsibility of controlling the economy.

Subpart (d):

To determine

The money supply of the economy.

Subpart (d):

Expert Solution

Explanation of Solution

In the case when the banks have only 10 percent reserves and use the remaining to provide loans to the public, there will be a multiplier effect on the money supply and the multiplier value can be calculated as follows:

Money multiplier=1Reserve ratio=10.10=10

So, the value of the money multiplier in the economy is 10. Thus, when the people hold all the money as demand deposits with the banks, the banks use the money to create new money. Thus, the total money supply increases by the multiplier times, which can be calculated as follows:

Total money supply=Reserves × Multiplier value=2,000×10=20,000

Thus, the total money supply in the economy will be $20,000.

Economics Concept Introduction

Concept introduction:

Money: It is any item that is accepted as the payment for the goods and services by the economy.

Banks: They are the financial institutions that accept the deposits of money from the general public and use this money to provide loans to the public.

Fed: It is the central bank of the US, and it has the responsibility of controlling the economy.

Subpart (e):

To determine

The money supply of the economy.

Subpart (e):

Expert Solution

Explanation of Solution

In the case when the people hold equal amount of currency with them and with the bank

as demand deposits, since the reserve requirement ratio is 10 percent, in order to calculate the quantity of money, the following two equations must be satisfied:

Cash held by public (C)=Deposits held with banks (D)−−−−−−(1)

and 10 ×($2,000−C)=D ------(2)

We can substitute the first equation in the second equation as follows:

10 ×($2,000−C)=D20,000−10D=D20,000=11DD=20,00011=1818.18

Thus, the deposits held with the banks are $1818.18. Since the public hold equal money with them and with the banks, the people will hold the same quantity with them which is $1818.18. Thus, the total quantity of money can be calculated by summating the two as follows:

Total quantity of money=Currency held by people (C)+Deposits with banks (D)=1818.18+1818.18=3636.36

Thus, the total quantity of money in the economy is equal to $3636.36.

Economics Concept Introduction

Concept introduction:

Money: It is any item that is accepted as the payment for the goods and services by the economy.

Banks: They are the financial institutions that accept the deposits of money from the general public and use this money to provide loans to the public.

Fed: It is the central bank of the US, and it has the responsibility of controlling the economy.

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Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 4

Question

Chapter 11, Problem 11PA

Subpart (a):

To determine

The money supply of the economy.

Subpart (a):

Expert Solution

Explanation of Solution

The Federal Reserve is the central bank of the US economy, and it is usually known as the Fed. The Fed has the responsibility to keep the economy controlled from the fluctuations, and it has to control the money supply of the economy through its monetary policies. When the purchase of the government bonds from the public takes place, it will provide the money to the public, which will increase the consumption of the economy. As a result of the multiplier effect, the money supply in the economy will increase by the multiplier times.

It is given that the economy contains 2,000 bills that have a value of $1 each. So, the total reserves of the economy are the summation of all the bills and it is $2,000. When there is no deposit and people hold all the money with them, the banks will have nothing to provide loans, and there will be no new money created in the economy. Thus, the total quantity of money in the economy is equal to $2,000 itself.

Economics Concept Introduction

Concept introduction:

Money: It is any item that is accepted as the payment for the goods and services by the economy.

Banks: They are the financial institutions that accept the deposits of money from the general public and use this money to provide loans to the public.

Fed: It is the central bank of the US, and it has the responsibility of controlling the economy.

Subpart (b):

To determine

The money supply of the economy.

Subpart (b):

Expert Solution

Explanation of Solution

The banks hold all the deposits as the excess reserves and people deposit all the currency with the banks, then the total deposits with the bank becomes $2,000, and since no loan is provided by the banks, the total reserves of the economy remain the same, which means that the total quantity of money in the economy remains as $2,000 itself. No new money is created.

Economics Concept Introduction

Concept introduction:

Money: It is any item that is accepted as the payment for the goods and services by the economy.

Banks: They are the financial institutions that accept the deposits of money from the general public and use this money to provide loans to the public.

Fed: It is the central bank of the US, and it has the responsibility of controlling the economy.

Subpart (c):

To determine

The money supply of the economy.

Subpart (c):

Expert Solution

Explanation of Solution

In the case when people hold $1,000 with them and deposits the remaining $1,000 with the banks where the banks maintain 100 percent reserves and nothing is provided as loans to the public, there will be no new currency generated and thus the total quantity of money in the economy will be the summation of the currency held by the public and the currency held by the banks. Thus, it remains the same $2,000.

Economics Concept Introduction

Concept introduction:

Money: It is any item that is accepted as the payment for the goods and services by the economy.

Banks: They are the financial institutions that accept the deposits of money from the general public and use this money to provide loans to the public.

Fed: It is the central bank of the US, and it has the responsibility of controlling the economy.

Subpart (d):

To determine

The money supply of the economy.

Subpart (d):

Expert Solution

Explanation of Solution

In the case when the banks have only 10 percent reserves and use the remaining to provide loans to the public, there will be a multiplier effect on the money supply and the multiplier value can be calculated as follows:

Money multiplier=1Reserve ratio=10.10=10

So, the value of the money multiplier in the economy is 10. Thus, when the people hold all the money as demand deposits with the banks, the banks use the money to create new money. Thus, the total money supply increases by the multiplier times, which can be calculated as follows:

Total money supply=Reserves × Multiplier value=2,000×10=20,000

Thus, the total money supply in the economy will be $20,000.

Economics Concept Introduction

Concept introduction:

Money: It is any item that is accepted as the payment for the goods and services by the economy.

Banks: They are the financial institutions that accept the deposits of money from the general public and use this money to provide loans to the public.

Fed: It is the central bank of the US, and it has the responsibility of controlling the economy.

Subpart (e):

To determine

The money supply of the economy.

Subpart (e):

Expert Solution

Explanation of Solution

In the case when the people hold equal amount of currency with them and with the bank

as demand deposits, since the reserve requirement ratio is 10 percent, in order to calculate the quantity of money, the following two equations must be satisfied:

Cash held by public (C)=Deposits held with banks (D)−−−−−−(1)

and 10 ×($2,000−C)=D ------(2)

We can substitute the first equation in the second equation as follows:

10 ×($2,000−C)=D20,000−10D=D20,000=11DD=20,00011=1818.18

Thus, the deposits held with the banks are $1818.18. Since the public hold equal money with them and with the banks, the people will hold the same quantity with them which is $1818.18. Thus, the total quantity of money can be calculated by summating the two as follows:

Total quantity of money=Currency held by people (C)+Deposits with banks (D)=1818.18+1818.18=3636.36

Thus, the total quantity of money in the economy is equal to $3636.36.

Economics Concept Introduction

Concept introduction:

Money: It is any item that is accepted as the payment for the goods and services by the economy.

Banks: They are the financial institutions that accept the deposits of money from the general public and use this money to provide loans to the public.

Fed: It is the central bank of the US, and it has the responsibility of controlling the economy.

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Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 5

Chapter 11, Problem 11PA

Subpart (a):

To determine

The money supply of the economy.

Subpart (a):

Expert Solution

Explanation of Solution

The Federal Reserve is the central bank of the US economy, and it is usually known as the Fed. The Fed has the responsibility to keep the economy controlled from the fluctuations, and it has to control the money supply of the economy through its monetary policies. When the purchase of the government bonds from the public takes place, it will provide the money to the public, which will increase the consumption of the economy. As a result of the multiplier effect, the money supply in the economy will increase by the multiplier times.

It is given that the economy contains 2,000 bills that have a value of $1 each. So, the total reserves of the economy are the summation of all the bills and it is $2,000. When there is no deposit and people hold all the money with them, the banks will have nothing to provide loans, and there will be no new money created in the economy. Thus, the total quantity of money in the economy is equal to $2,000 itself.

Economics Concept Introduction

Concept introduction:

Money: It is any item that is accepted as the payment for the goods and services by the economy.

Banks: They are the financial institutions that accept the deposits of money from the general public and use this money to provide loans to the public.

Fed: It is the central bank of the US, and it has the responsibility of controlling the economy.

Subpart (b):

To determine

The money supply of the economy.

Subpart (b):

Expert Solution

Explanation of Solution

The banks hold all the deposits as the excess reserves and people deposit all the currency with the banks, then the total deposits with the bank becomes $2,000, and since no loan is provided by the banks, the total reserves of the economy remain the same, which means that the total quantity of money in the economy remains as $2,000 itself. No new money is created.

Economics Concept Introduction

Concept introduction:

Money: It is any item that is accepted as the payment for the goods and services by the economy.

Banks: They are the financial institutions that accept the deposits of money from the general public and use this money to provide loans to the public.

Fed: It is the central bank of the US, and it has the responsibility of controlling the economy.

Subpart (c):

To determine

The money supply of the economy.

Subpart (c):

Expert Solution

Explanation of Solution

In the case when people hold $1,000 with them and deposits the remaining $1,000 with the banks where the banks maintain 100 percent reserves and nothing is provided as loans to the public, there will be no new currency generated and thus the total quantity of money in the economy will be the summation of the currency held by the public and the currency held by the banks. Thus, it remains the same $2,000.

Economics Concept Introduction

Concept introduction:

Money: It is any item that is accepted as the payment for the goods and services by the economy.

Banks: They are the financial institutions that accept the deposits of money from the general public and use this money to provide loans to the public.

Fed: It is the central bank of the US, and it has the responsibility of controlling the economy.

Subpart (d):

To determine

The money supply of the economy.

Subpart (d):

Expert Solution

Explanation of Solution

In the case when the banks have only 10 percent reserves and use the remaining to provide loans to the public, there will be a multiplier effect on the money supply and the multiplier value can be calculated as follows:

Money multiplier=1Reserve ratio=10.10=10

So, the value of the money multiplier in the economy is 10. Thus, when the people hold all the money as demand deposits with the banks, the banks use the money to create new money. Thus, the total money supply increases by the multiplier times, which can be calculated as follows:

Total money supply=Reserves × Multiplier value=2,000×10=20,000

Thus, the total money supply in the economy will be $20,000.

Economics Concept Introduction

Concept introduction:

Money: It is any item that is accepted as the payment for the goods and services by the economy.

Banks: They are the financial institutions that accept the deposits of money from the general public and use this money to provide loans to the public.

Fed: It is the central bank of the US, and it has the responsibility of controlling the economy.

Subpart (e):

To determine

The money supply of the economy.

Subpart (e):

Expert Solution

Explanation of Solution

In the case when the people hold equal amount of currency with them and with the bank

as demand deposits, since the reserve requirement ratio is 10 percent, in order to calculate the quantity of money, the following two equations must be satisfied:

Cash held by public (C)=Deposits held with banks (D)−−−−−−(1)

and 10 ×($2,000−C)=D ------(2)

We can substitute the first equation in the second equation as follows:

10 ×($2,000−C)=D20,000−10D=D20,000=11DD=20,00011=1818.18

Thus, the deposits held with the banks are $1818.18. Since the public hold equal money with them and with the banks, the people will hold the same quantity with them which is $1818.18. Thus, the total quantity of money can be calculated by summating the two as follows:

Total quantity of money=Currency held by people (C)+Deposits with banks (D)=1818.18+1818.18=3636.36

Thus, the total quantity of money in the economy is equal to $3636.36.

Economics Concept Introduction

Concept introduction:

Money: It is any item that is accepted as the payment for the goods and services by the economy.

Banks: They are the financial institutions that accept the deposits of money from the general public and use this money to provide loans to the public.

Fed: It is the central bank of the US, and it has the responsibility of controlling the economy.

Answer 6

Chapter 11, Problem 11PA

Subpart (a):

To determine

The money supply of the economy.

Subpart (a):

Expert Solution

Explanation of Solution

The Federal Reserve is the central bank of the US economy, and it is usually known as the Fed. The Fed has the responsibility to keep the economy controlled from the fluctuations, and it has to control the money supply of the economy through its monetary policies. When the purchase of the government bonds from the public takes place, it will provide the money to the public, which will increase the consumption of the economy. As a result of the multiplier effect, the money supply in the economy will increase by the multiplier times.

It is given that the economy contains 2,000 bills that have a value of $1 each. So, the total reserves of the economy are the summation of all the bills and it is $2,000. When there is no deposit and people hold all the money with them, the banks will have nothing to provide loans, and there will be no new money created in the economy. Thus, the total quantity of money in the economy is equal to $2,000 itself.

Economics Concept Introduction

Concept introduction:

Money: It is any item that is accepted as the payment for the goods and services by the economy.

Banks: They are the financial institutions that accept the deposits of money from the general public and use this money to provide loans to the public.

Fed: It is the central bank of the US, and it has the responsibility of controlling the economy.

Answer 7

Chapter 11, Problem 11PA

Subpart (a):

To determine

The money supply of the economy.

Answer 8

Subpart (a):

Expert Solution

Explanation of Solution

The Federal Reserve is the central bank of the US economy, and it is usually known as the Fed. The Fed has the responsibility to keep the economy controlled from the fluctuations, and it has to control the money supply of the economy through its monetary policies. When the purchase of the government bonds from the public takes place, it will provide the money to the public, which will increase the consumption of the economy. As a result of the multiplier effect, the money supply in the economy will increase by the multiplier times.

It is given that the economy contains 2,000 bills that have a value of $1 each. So, the total reserves of the economy are the summation of all the bills and it is $2,000. When there is no deposit and people hold all the money with them, the banks will have nothing to provide loans, and there will be no new money created in the economy. Thus, the total quantity of money in the economy is equal to $2,000 itself.

Answer 9

Subpart (a):

Expert Solution

Answer 10

Subpart (a):

Expert Solution

Answer 11

Expert Solution

Answer 12

Economics Concept Introduction

Concept introduction:

Money: It is any item that is accepted as the payment for the goods and services by the economy.

Banks: They are the financial institutions that accept the deposits of money from the general public and use this money to provide loans to the public.

Fed: It is the central bank of the US, and it has the responsibility of controlling the economy.

Answer 13

Subpart (b):

To determine

The money supply of the economy.

Subpart (b):

Expert Solution

Explanation of Solution

The banks hold all the deposits as the excess reserves and people deposit all the currency with the banks, then the total deposits with the bank becomes $2,000, and since no loan is provided by the banks, the total reserves of the economy remain the same, which means that the total quantity of money in the economy remains as $2,000 itself. No new money is created.

Economics Concept Introduction

Concept introduction:

Money: It is any item that is accepted as the payment for the goods and services by the economy.

Banks: They are the financial institutions that accept the deposits of money from the general public and use this money to provide loans to the public.

Fed: It is the central bank of the US, and it has the responsibility of controlling the economy.

Answer 14

Subpart (b):

To determine

The money supply of the economy.

Answer 15

Subpart (b):

Expert Solution

Explanation of Solution

The banks hold all the deposits as the excess reserves and people deposit all the currency with the banks, then the total deposits with the bank becomes $2,000, and since no loan is provided by the banks, the total reserves of the economy remain the same, which means that the total quantity of money in the economy remains as $2,000 itself. No new money is created.

Answer 16

Subpart (b):

Expert Solution

Answer 17

Subpart (b):

Expert Solution

Answer 18

Expert Solution

Answer 19

Economics Concept Introduction

Concept introduction:

Money: It is any item that is accepted as the payment for the goods and services by the economy.

Banks: They are the financial institutions that accept the deposits of money from the general public and use this money to provide loans to the public.

Fed: It is the central bank of the US, and it has the responsibility of controlling the economy.

Answer 20

Subpart (c):

To determine

The money supply of the economy.

Subpart (c):

Expert Solution

Explanation of Solution

In the case when people hold $1,000 with them and deposits the remaining $1,000 with the banks where the banks maintain 100 percent reserves and nothing is provided as loans to the public, there will be no new currency generated and thus the total quantity of money in the economy will be the summation of the currency held by the public and the currency held by the banks. Thus, it remains the same $2,000.

Economics Concept Introduction

Concept introduction:

Money: It is any item that is accepted as the payment for the goods and services by the economy.

Banks: They are the financial institutions that accept the deposits of money from the general public and use this money to provide loans to the public.

Fed: It is the central bank of the US, and it has the responsibility of controlling the economy.

Answer 21

Subpart (c):

To determine

The money supply of the economy.

Answer 22

Subpart (c):

Expert Solution

Explanation of Solution

In the case when people hold $1,000 with them and deposits the remaining $1,000 with the banks where the banks maintain 100 percent reserves and nothing is provided as loans to the public, there will be no new currency generated and thus the total quantity of money in the economy will be the summation of the currency held by the public and the currency held by the banks. Thus, it remains the same $2,000.

Answer 23

Subpart (c):

Expert Solution

Answer 24

Subpart (c):

Expert Solution

Answer 25

Expert Solution

Answer 26

Economics Concept Introduction

Concept introduction:

Money: It is any item that is accepted as the payment for the goods and services by the economy.

Banks: They are the financial institutions that accept the deposits of money from the general public and use this money to provide loans to the public.

Fed: It is the central bank of the US, and it has the responsibility of controlling the economy.

Answer 27

Subpart (d):

To determine

The money supply of the economy.

Subpart (d):

Expert Solution

Explanation of Solution

In the case when the banks have only 10 percent reserves and use the remaining to provide loans to the public, there will be a multiplier effect on the money supply and the multiplier value can be calculated as follows:

Money multiplier=1Reserve ratio=10.10=10

So, the value of the money multiplier in the economy is 10. Thus, when the people hold all the money as demand deposits with the banks, the banks use the money to create new money. Thus, the total money supply increases by the multiplier times, which can be calculated as follows:

Total money supply=Reserves × Multiplier value=2,000×10=20,000

Thus, the total money supply in the economy will be $20,000.

Economics Concept Introduction

Concept introduction:

Money: It is any item that is accepted as the payment for the goods and services by the economy.

Banks: They are the financial institutions that accept the deposits of money from the general public and use this money to provide loans to the public.

Fed: It is the central bank of the US, and it has the responsibility of controlling the economy.

Answer 28

Subpart (d):

To determine

The money supply of the economy.

Answer 29

Subpart (d):

Expert Solution

Explanation of Solution

In the case when the banks have only 10 percent reserves and use the remaining to provide loans to the public, there will be a multiplier effect on the money supply and the multiplier value can be calculated as follows:

Money multiplier=1Reserve ratio=10.10=10

So, the value of the money multiplier in the economy is 10. Thus, when the people hold all the money as demand deposits with the banks, the banks use the money to create new money. Thus, the total money supply increases by the multiplier times, which can be calculated as follows:

Total money supply=Reserves × Multiplier value=2,000×10=20,000

Thus, the total money supply in the economy will be $20,000.

Answer 30

Subpart (d):

Expert Solution

Answer 31

Subpart (d):

Expert Solution

Answer 32

Expert Solution

Answer 33

Economics Concept Introduction

Concept introduction:

Money: It is any item that is accepted as the payment for the goods and services by the economy.

Banks: They are the financial institutions that accept the deposits of money from the general public and use this money to provide loans to the public.

Fed: It is the central bank of the US, and it has the responsibility of controlling the economy.

Answer 34

Subpart (e):

To determine

The money supply of the economy.

Subpart (e):

Expert Solution

Explanation of Solution

In the case when the people hold equal amount of currency with them and with the bank

as demand deposits, since the reserve requirement ratio is 10 percent, in order to calculate the quantity of money, the following two equations must be satisfied:

Cash held by public (C)=Deposits held with banks (D)−−−−−−(1)

and 10 ×($2,000−C)=D ------(2)

We can substitute the first equation in the second equation as follows:

10 ×($2,000−C)=D20,000−10D=D20,000=11DD=20,00011=1818.18

Thus, the deposits held with the banks are $1818.18. Since the public hold equal money with them and with the banks, the people will hold the same quantity with them which is $1818.18. Thus, the total quantity of money can be calculated by summating the two as follows:

Total quantity of money=Currency held by people (C)+Deposits with banks (D)=1818.18+1818.18=3636.36

Thus, the total quantity of money in the economy is equal to $3636.36.

Economics Concept Introduction

Concept introduction:

Money: It is any item that is accepted as the payment for the goods and services by the economy.

Banks: They are the financial institutions that accept the deposits of money from the general public and use this money to provide loans to the public.

Fed: It is the central bank of the US, and it has the responsibility of controlling the economy.

Answer 35

Subpart (e):

To determine

The money supply of the economy.

Answer 36

Subpart (e):

Expert Solution

Explanation of Solution

In the case when the people hold equal amount of currency with them and with the bank

as demand deposits, since the reserve requirement ratio is 10 percent, in order to calculate the quantity of money, the following two equations must be satisfied:

Cash held by public (C)=Deposits held with banks (D)−−−−−−(1)

and 10 ×($2,000−C)=D ------(2)

We can substitute the first equation in the second equation as follows:

10 ×($2,000−C)=D20,000−10D=D20,000=11DD=20,00011=1818.18

Thus, the deposits held with the banks are $1818.18. Since the public hold equal money with them and with the banks, the people will hold the same quantity with them which is $1818.18. Thus, the total quantity of money can be calculated by summating the two as follows:

Total quantity of money=Currency held by people (C)+Deposits with banks (D)=1818.18+1818.18=3636.36

Thus, the total quantity of money in the economy is equal to $3636.36.

Answer 37

Subpart (e):

Expert Solution

Answer 38

Subpart (e):

Expert Solution

Answer 39

Expert Solution

Answer 40

Economics Concept Introduction

Concept introduction:

Money: It is any item that is accepted as the payment for the goods and services by the economy.

Banks: They are the financial institutions that accept the deposits of money from the general public and use this money to provide loans to the public.

Fed: It is the central bank of the US, and it has the responsibility of controlling the economy.