Economics (Irwin Economics)
21st Edition
ISBN: 9781259723223
Author: Campbell R. McConnell, Stanley L. Brue, Sean Masaki Flynn Dr.
Publisher: McGraw-Hill Education
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Chapter 36, Problem 7RQ
To determine
Increase in federal funds.
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Using the simply multiple deposit multiplier model, if the Federal Reserve Bank wants lending to increase by $4,500, and th
required reserve ratio is 5%, how much do they need to increase reserves by?
O 225
O 205
O 270
O 255
Suppose the Federal Reserve has set the money supply at $4 million. The table below shows the interest rate and total demand for money.
Demand (in millions)
Interest Rate
20%
15
10
5
0
$1
2
3
4
5
What is the equilibrium interest rate?
Multiple Choice
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20 percent
5 percent
O percent
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Suppose there is an upswing in the economy with a large demand for finance
to invest by the residential and non-residential building sector such that
lending by all banks increases by $250 billion. On the assumption the reserve
(or liquidity) ratio of banks is 12% this expansion in economic activity will
result in an endogenous increase of
O $20 billion of reserves and $230 billion of bank deposit money
O $34.1 billion of reserves and $284.1 billion of bank deposit money
O $20 billion of reserves and $270 billion of bank deposit money
O $26.2 billion of reserves and $276.2 billion of bank deposit money
Chapter 36 Solutions
Economics (Irwin Economics)
Ch. 36.1 - Prob. 1QQCh. 36.1 - Prob. 2QQCh. 36.1 - Prob. 3QQCh. 36.1 - Prob. 4QQCh. 36.4 - Prob. 1QQCh. 36.4 - Prob. 2QQCh. 36.4 - Prob. 3QQCh. 36.4 - Prob. 4QQCh. 36.5 - Prob. 1QQCh. 36.5 - Prob. 2QQ
Ch. 36.5 - Prob. 3QQCh. 36.5 - Prob. 4QQCh. 36 - Prob. 1DQCh. 36 - Prob. 2DQCh. 36 - Prob. 3DQCh. 36 - Prob. 4DQCh. 36 - Prob. 5DQCh. 36 - Prob. 6DQCh. 36 - Prob. 7DQCh. 36 - Prob. 8DQCh. 36 - Prob. 1RQCh. 36 - Prob. 2RQCh. 36 - Prob. 3RQCh. 36 - Prob. 4RQCh. 36 - Prob. 5RQCh. 36 - Prob. 6RQCh. 36 - Prob. 7RQCh. 36 - Prob. 8RQCh. 36 - Prob. 9RQCh. 36 - Prob. 1PCh. 36 - Prob. 2PCh. 36 - Prob. 3PCh. 36 - Prob. 4PCh. 36 - Prob. 5PCh. 36 - Prob. 6PCh. 36 - Prob. 7P
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- 27arrow_forwardUsing the simply multiple deposit multiplier model, the Federal Reserve Bank desires to increase the size of checkable deposits by $50,500. If the required reserve ratio is 5%, then the Fed needs to purchase worth of securities in the open market. O $2,445 O $2,650 O $2,525 O $2,500arrow_forwardFigure 30-3 On the following graph, MS represents the money supply and MD represents money demand. O 2.0. O 14.3. O 2.9. VALUE OF MONEY O 0.35. 0.35 MS, 8000 MS₂ Refer to Figure 30-3. Suppose the relevant money-supply curve is the one labeled MS₂; also suppose the economy's real GDP is 65,000 for the year. If the market for money is in equilibrium, then the velocity of money is approximately 13000 QUANTITY OF MONEY MDarrow_forward
- Can you explain how they arrived at the answer please? Question #4arrow_forwardA headline reads: "Fed Cuts the Federal Funds Rate by Half a Point." This suggests that: 1) The prime interest rate will rise 2) Monetary policy has eased 3) Tax rates have been reduced. O4) The discount rate will risearrow_forwardThe diagram below shows the market for financial capital in the long run when real GDP is equal to potential output, Y*. Real Interest Rate 5% 4% 3% 2% 1% X ID 20 30 40 50 60 70 80 90 100 FIGURE 25-3 Select one: O a. demand for; -60 O b. demand for; 60 O c. O d. Refer to Figure 25-3. Suppose the interest rate in this market for financial capital is 4%. In this case there is an excess Oe. supply of; 90 supply of; 30 e. demand for; 30 NS Quantity of Investment and Saving ($ billions) financial capital of billion dollars.arrow_forward
- QUESTION 1 If the reserve ratio is 5% then the money multiplier is? O 20; This means that for every dollar deposited into a bank account, the money supply decreases by $20. O 20. This means that for every dollar deposited into a bank account, the money supply increases by $20. O 2. This means that for every dollar deposited into a bank account, the money supply decreases by $2. O 20. This means that for every dollar deposited into a bank account, the money supply increases by $2.arrow_forwardSuppose a customer makes a $2,280 cash withdrawal from Bank A. If the reserve requirement was total decrease in the money supply in the 6 percent, the deposit would ultimately lead to a economy, if all banks in the system lend out 100 percent of their excess reserves. O $2,143.20 O $2,280 O $28,500 O $35,720 $38,000arrow_forwardIf Janet expects interest rates to rise in the near future, she will probably be willing to Select one: O a. maintain only the current holding of bonds. O b. O c. buy bonds now, and hold less money. put her money under her mattress rather than in a bank account. O d. buy bonds now, but only if their price falls. O e. sell bonds now, and hold more money.arrow_forward
- MSo MS, 10 2 MD 3.0 3.1 3.2 3.3 3.4 3.5 Real money (trillions of 2000 dollars) The figure above illustrates the effect of 1) a decrease in the required reserve ratio. O 2) an increase in the required reserve ratio. O 3) a rise in the discount rate. O 4) a Fed open market sale of government securities. Interest rate (percent per year)arrow_forward4arrow_forwardScenario: Assets and Liabilities of the Banking System Assets Loans Reserves Reference Ref 14-12 O $111.111 O $250,000 $900,000 100,000 O $666,667 O $1 million Liabilities Deposits (Scenario: Assets and Liabilities of the Banking System) Suppose that the reserve ratio is 10% when the Fed buys $100,000 worth of U.S. Treasury bills from the banking system. If the banking system does NOT want to hold any excess reserves. will be added to the money supply. $1,000,000arrow_forward
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