Economics: Private and Public Choice
16th Edition
ISBN: 9781337642224
Author: James D. Gwartney; Richard L. Stroup; Russell S. Sobel
Publisher: Cengage Learning US
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Chapter 13, Problem 7CQ
To determine
Identify the impact on the money supply by increasing the additional loans.
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Students have asked these similar questions
You take $500 that you held as currency and put it into the banking system. The reserve ratio is
equal to 20%.
Calculate the money multiplier.
By how much will increase the total amount of deposits in the banking system?
By how much will increase the money supply?
What amount of additional money supply can a bank system create if the required reserves rate is 10%, and deposits are $5 million?
Find the amount of money that would be created in the banking system because of the money multiplier if the required reserve ratio is 14%, and a bank that had been holding $1,000 as excess reserves decides to loan all this money out.
Chapter 13 Solutions
Economics: Private and Public Choice
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- If the Bank of Canada performs an Open-Market-Sale with a member of the public, what is the effect on the banking system and the money supply? The banking system has fewer reserves, and the money supply tends to grow. The banking system has more reserves, and the money supply tends to fall. The banking system has more reserves, and the money supply tends to grow. The banking system has fewer reserves, and the money supply tends to fall.arrow_forwardIf bank A borrows $10 million from bank B, what happens to the reserves in bank A? In the banking system? Please explain.arrow_forwardHow is a bank able to lend more money than it has in reserves?arrow_forward
- For a financial system, the reserve ratio is 10% and the Fed decides to buy $5 million worth of bonds from the public. If the public deposits this amount into transactions accounts, what happens to the money supply initially and directly? What is the potential change in lending capacity (money creation) for the banking system?arrow_forwardThe U.S. Treasury maintains accounts at commercial banks. What would be the consequences for the money supply if the Treasury shifted funds from one of those banks to the Fed?arrow_forwardSuppose that your bank's reserve ratio is 0.2 and you deposit $50,000 into the bank. Assume that the bank loans out the maximum amount it can, and people deposit all their money. What is the deposit multiplier? What is the total increase in deposits in the banking system? What is the change in the money supply?arrow_forward
- If the reserve requirement is 20%, and total deposits are $1,500,000.00, how much must a bank maintain in reserves? What is the money multiplier? How large is the money supply created from these deposits?arrow_forwardIf currency ratio is 0.10, required reserves ratio is 0.1, excess reserves ratio is 0.05, the Fed buys $300,000 in securities from the public and they withdraw 50 % of it in cash, what happens to reserves, the monetary base, and the money supply after the change has worked its way through the entire banking system? Use T-accounts to explain your answer.arrow_forwardAgain, please consider the following information, related to Economy Alpha. Economy Alpha contains many banks. One of them is Bank One, which has a reserve requirement of 10% and the following information: $8000 cash in Bank One's vault $2000 US government bonds held by Bank One $100,000 checking deposits in Bank One $4000 Deposit in the Fed for Bank One $12,000 savings deposits in Bank One Calculate the maximum amount the entire banking system can create in new money, starting with Bank One's reserves information, carefully following all numeric instructions.arrow_forward
- The Federal Reserve sells $28.00 million in Treasury securities. If the required reserve ratio is 30.00%, and all currency is deposited into the banking system, and banks hold excess reserves of 10%, then the maximum amount the money supply can decrease is $ _____ million. (Insert your answer in millions, and round your answer to two decimal places.)arrow_forwardThe Bank of Canada sets the reserve requirement, which banks must meet through deposits at the Bank of Canada and cash held at the bank. What do these requirements achieve? Check all that apply. They help to facilitate transfers of funds between banks when a customer from one bank writes a cheque to a customer of another. They help to control the money supply. They help to prevent bank runs by reassuring the public that banks will not make too many loans and run out of cash. They mean that a bank must have one dollar of deposits for every dollar it lends.arrow_forwardThe task I am struggling with: Tracy Williams deposits $500 that was in her sock drawer into a checking account at the local bank. The reserve ratio is 10%. a) how dies the deposit initially change the T-account of the local bank? How does it change the money supply? b) If the bank maintains a reserve ratio of 10%, how will it respond to the new deposit? c) if every time the bank makes a loan, the loan results in a new checkable bank deposit in a different bank equal to the amount of the loan, by how much could the total money supply in the economy expand in response to Tracy´s initial cash deposit of $500? Thank you very much for your help.arrow_forward
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