Bundle: Principles of Economics, Loose-leaf Version, 8th + LMS Integrated MindTap Economics, 2 terms (12 months) Printed Access Card
8th Edition
ISBN: 9781337607735
Author: N. Gregory Mankiw
Publisher: Cengage Learning
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Question
Chapter 29, Problem 6CQQ
To determine
The impact of the behavior of banks and people in fractional reserve banking.
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Students have asked these similar questions
a.
Assume that all the money is held as a deposit while banks keep 10% of the deposit as
a reserve. Estimate the money multiplier and money supply in the economy.
b.
Assume that the public is holding 40% of their assets as currency while depositing the
remaining in banks, while banks keep 10% of deposit as a reserve. Estimate the money
multiplier and money supply in the economy.
If a society chooses fiat money as its money form, it __________.Group of answer choices
A. will need to make sure the currency is convertible into gold
B. must make sure there is an illiquid money supply
C. should estimate any central bank
D. must be particularly vigilant about controlling the quantity of money
An increase in the interest paid on excess reserves will encourage banks to hold _______ excess reserves and make _______ loans.
a. more; more
b. less; fewer
c. more; fewer
d. less; more
Chapter 29 Solutions
Bundle: Principles of Economics, Loose-leaf Version, 8th + LMS Integrated MindTap Economics, 2 terms (12 months) Printed Access Card
Ch. 29.1 - Prob. 1QQCh. 29.2 - Prob. 2QQCh. 29.3 - Prob. 3QQCh. 29.4 - Prob. 4QQCh. 29 - Prob. 1CQQCh. 29 - Prob. 2CQQCh. 29 - Prob. 3CQQCh. 29 - Prob. 4CQQCh. 29 - Prob. 5CQQCh. 29 - Prob. 6CQQ
Ch. 29 - Prob. 1QRCh. 29 - Prob. 2QRCh. 29 - Prob. 3QRCh. 29 - Prob. 4QRCh. 29 - Prob. 5QRCh. 29 - Prob. 6QRCh. 29 - Prob. 7QRCh. 29 - Prob. 8QRCh. 29 - Prob. 9QRCh. 29 - Prob. 10QRCh. 29 - Prob. 1PACh. 29 - Prob. 2PACh. 29 - Prob. 3PACh. 29 - Prob. 4PACh. 29 - Prob. 5PACh. 29 - Prob. 6PACh. 29 - Prob. 7PACh. 29 - Prob. 8PACh. 29 - Prob. 9PACh. 29 - Prob. 10PACh. 29 - Prob. 11PACh. 29 - Prob. 12PA
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- Handwritten calculation otherwise will dislikearrow_forwardIf the reserve requirement is 5 percent, a bank desires to hold no excess reserves, and it receives a new deposit of $10, then this bank A. must increase its required reserves by $10. B. will initially see its total reserves increase by $10.50. C. will be able to make new loans up to a maximum of $9.50. D. All of the above are correct.arrow_forwardIsabella takes $100 of currency from her wallet anddeposits it into her checking account. If the bankadds the entire $100 to reserves, the money supply_________, but if the bank lends out some of the$100, the money supply _________.a. increases; increases even moreb. increases; increases by lessc. is unchanged; increasesd. decreases; decreases by lessarrow_forward
- At one time, the country of Aquilonia had no banks, but had currency of $10 million. Then a banking system was established with a reserve requirement of 10 percent. The people of Aquilonia deposited half of their currency into the banking system. If banks do not hold excess reserves, what is Aquilonia's money supply now? a. $55 million b. $10 million C. $50 million d. $11 millionarrow_forwardHumongous Bank is the only bank in the economy.The people in this economy have $20 million in money,and they deposit all their money in Humongous Bank.a. Humongous Bank decides on a policy of holding100% reserves. Draw a T-account for the bank.b. Humongous Bank is required to hold 5% of itsexisting $20 million as reserves, and to loan outthe rest. Draw a T-account for the bank after ithas made its first round of loans.c. Assume that Humongous bank is part of amultibank system. How much will money supplyincrease with that original $19 million loan?arrow_forwardA. MCQ Suppose the public holds 30% of their money as currency and the rest as deposits in their banks. Moreover, the central bank requires banks to maintain a reserve-deposit ratio of 15%. What will be the change in the total money supply if the central bank buys $10 million of government bonds from the public and pays for them by creating money (round to the nearest decimal point)? a. The money supply will decrease by $51.3 million b. The money supply will increase by $51.3 million c. The money supply will increase by $24.7 million d. The money supply will increase by $66.7 millionarrow_forward
- If the Central Bank decides to decrease the money supply, it will Select one: a. purchase government bonds. b. sell government bonds. C. purchase corporate bonds. d. reduce interest rates.arrow_forwardThe economy of Elmendyn contains 2000 $1 bills. a) If people hold all money as currency, what is the quantity of money supply ? b) If people hold all money as demand deposit and banks maintains 100% reserves what is quantity of money? c) if people equal amount of currency and demand deposits and bank maintains 100% reserves, what is quantity of money? d) If people hold all money as demand deposits and bank maintaines reserve ratio of 10% what is the quantity of money? e) If the people holds equal amount of currency and demand deposit and banks maintains reserve ratio of 10%, what is the quantity of money?arrow_forwardIf the public has a currency ratio of 0.2 and banks have a reserve ratio of 0.2, how much cash does the central bank need to print to add $600 to the money supply? Select one: a. $1800 b. $120 c. $200 d. $600arrow_forward
- Humongous Bank is the only bank in the economy. The people in this economy have 20 million in money, and they deposit all their money in Humongous Bank. Humongous Bank decides on a policy of holding 100 reserves. Draw a T-account for the bank. Humongous Bank is required to hold 5 of its existing 20 million as reserves, and to loan out the rest. Draw a T-account for the bank after it has made its first round of loans. Assume that Humongous bank is part of a multibank system. How much will money supply increase with that original 19 million loan?arrow_forwardExplain how to use the discount rate to expand the money supply.arrow_forwardThe economy of Elmendyn contains 2,000 of $1 bills.a. If people hold all money as currency, what is the quantity of money?b. If people hold all money as demand deposits and banks maintain 100 percent reserves, what is the quantity of money?c. If people hold equal amounts of currency and demand deposits and banks maintain 100 percent reserves, what is the quantity of money?d. If people hold all money as demand deposits and banks maintain a reserve ratio of 10 percent, what is the quantity of money?e. If people hold equal amounts of currency and demand deposits and banks maintain a reserve ratio of 10 percent, what is the quantity of money?arrow_forward
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