Macroeconomics
10th Edition
ISBN: 9781319105990
Author: Mankiw, N. Gregory.
Publisher: Worth Publishers,
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Question
Chapter 4, Problem 5PA
(a)
To determine
The reserve-deposit ratio, the currency-deposit ratio, the money multiplier, and the money supply.
(b)
To determine
The new money supply.
(c)
To determine
The open market operations.
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Students have asked these similar questions
A. 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 million
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 million
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.
Knowledge Booster
Similar questions
- If the central bank sells 500 in bonds to a bank that has issued 10,000 in loans and is exactly meeting the reserve requirement of 10, what will happen to the amount of loans and to the money supply in general?arrow_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. 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_forwardI need help on all parts please!arrow_forward
- At one time, the country of Sylvania had no banks, but had currency of $35 million. Then a banking system was established with a reserve requirement of 20 percent. The people of Sylvania now keep one third of their money in the form of currency and two thirds in the form of bank deposits. If banks do not hold excess reserves, how much currency do the people of Sylvania now hold? a. $11.67 million b. $13.13 million С. $21.9 million d. $25 million Do not use Excel, use the shortest possible way to solve this question.arrow_forward2. In a particular economy, currency held by the public is 1,000 shekels, bank reserves are 200 shekels, and the desired reserve-deposit ratio is 0.2. what is the money supply? How is the money supply affected if the central bank prints 100 shekels and uses this new currency to buy government bonds from the public? Assume that the public does not wish to change the amount of currency it holds.arrow_forward22. Suppose the public holds 30% of their money as currency and the rest as deposits in theirbanks. Moreover, the central bank requires banks to maintain a reserve-deposit ratio of15%. What will be the change in the total money supply if the central bank buys $10million 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 millionb. The money supply will increase by $51.3 millionc. The money supply will increase by $24.7 milliond. The money supply will increase by $66.7 millione. All of the answers here are incorrect Apparently the answer is c, can anyone please explain it to me? i keep getting a different answerarrow_forward
- In Country Wise, households and firms want to keep a currency to deposit ratio, c, of 0.20, while banks want to keep a required deposits ratio, r, of 0.10. Banks in this country keep no excess reserves. The price level stands at 1, or 100%, and the money base is $40 billion. a. Calculate the money multiplier. b. What is the money supply? c. How much of the money supply will be held in the form of currency? In the form of bank deposits?arrow_forward7. Yesterday Bank A had no excess reserves. Today it received a new deposit of $4,000. a. If the bank maintains a reserve requirement of 2 percent, what is the maximum loan that Bank A can make? b. What is the maximum amount by which the money supply can be increased as a result of Bank A's new loan?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
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