MACROECONOMICS+ACHIEVE 1-TERM AC (LL)
10th Edition
ISBN: 9781319467203
Author: Mankiw
Publisher: MAC HIGHER
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Question
Chapter 4, Problem 7PA
(a)
To determine
Identify the effect of check tax policy on the currency deposit ratio.
(b)
To determine
Identify the money supply model under the fractional reserve banking.
(c)
To determine
The check tax policy and the great depression.
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Suppose the banks in an economy have a reserve-deposit ratio of 10 percent and the currencydeposit ratio is 20 percent.a. If the Central Bank increases the monetary base by $400 through open market operations, what will be the increase in the money supply?b. If the Central Bank increases the discount rate and firms react by increasing the reservedeposit ratio to 15 percent, what is the change in the multiplier? Will this change increase or decrease the money supply?
Some individuals have suggested raising the required reserve ratio for banks to 100 percent in a limited
reserve banking system.
a. What would the money multiplier be if this change was made? Assume people hold no cash.
Instructions: Enter your response as a whole number.
b. What effect would such a change have on the money supply?
The money supply would decrease
c. How could that effect be offset?
By a decrease in government spending
By an increase in government spending
By an increase in taxes
Why are bank accounts included in our definition of the money supply?
Chapter 4 Solutions
MACROECONOMICS+ACHIEVE 1-TERM AC (LL)
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- Give typing answer with explanation and conclusionarrow_forwardExplain how each of the following events affects the monetary base, the money multiplier and the money supply, ceteris paribus. a. The Federal Reserve buys bonds in an open market operation (assume that banks keep the same proportion of deposits as reserves and the currency-deposit ratio remains the same b. The Fed increases the interest rate it pays banks for holding reserves (assume that the currency-deposit ratio remains the same). c. The Fed flies a helicopter over 5th Avenue in New York City and drops newly printed $100 bills and people keep that cash rather than depositing it.arrow_forwardPage 1 of 4 C 1 3. Suppose I sell $1,000 of bonds to the Fed, and they credit my 1st National Bank (deposits increase). 1st National Bank makes loans to Steve, and Steve deposits all the loans in his bank account at 2nd National Bank. 2nd National Bank makes loans to Sarah, and Sarah deposits all the loans in her bank account at 3rd National Bank. The reserve ratio is 10%. What is the increase in money supply in this economy? Write answers in the box. ZOOM + 4arrow_forward
- If the Fed wants to decrease the quantity of money, what actions does it take? What is the effect on reserves in the banking system, loans, bank deposits, and the quantity of money? If the Fed wants to decrease the quantity of money, it makes an open market _______. A. purchase B. sale If the Fed wants to decrease the quantity of money, what actions does it take? What is the effect on reserves in the banking system, loans, bank deposits, and the quantity of money? If the Fed wants to decrease the quantity of money, it makes an open market _______. A. purchase B. sale Reserves in the banking system _______. Banks _______ loans. A. decrease; call in B. decrease; make more C. increase; make more D. increase;call in Bank deposits _______ and the quantity of money _______. A. increase;decreases B. increase;increases C. decrease;decreases D. decrease;increasesarrow_forwardThe central bank of the fictitious country "Alpha" raises bank reserves by $200. What effect will the increase in bank reserves have on the money supply in each of the following situations: a. If the banking system is a 100% reserve banking system, the money supply will increase by $ b. The banking system is a fractional reserve banking system with a desired reserve deposit ratio of 0.25, the money supply will increase by $1arrow_forwardWhat is “bitcoin” and is “bitcoin” currently part of the money supply ? If bitcoin becomes increasingly popular what exactly would that do to the Federal Reserve’s ability to control or change the money supply? Would it affect the Fed’s ability to control or change the money supply? Exactly how? And would it affect it in a good or bad way? And why?arrow_forward
- A. With the following values, calculate the money multiplier and the money supply: rr = .07 c = .30 ER = 0 Borrowed Reserves = 0 MB = $200 billion B. Calculate the level of currency (C), the level of deposits (D), the level of required reserves (RR), and the level of total reserves (R) in the banking system. C. If the bankers decide to hold a cushion of excess reserves equal to 9% of their checkable deposits. Calculate the new money multiplier, the new money supply, the level of deposits, currency in circulation, and the amount of excess reserves that banks will now hold.arrow_forwardNonearrow_forwardIn the United States, the Federal Reserve sets the reserve requirement, which banks must meet through deposits at the Federal Reserve district banks and cash held at the bank. What does this requirement achieve? Check all that apply. a. It ensures that banks cannot hoard money by holding too many reserves. b. It means that a bank must have one dollar of deposits for every dollar it lends out. c. It helps to prevent bank runs by reassuring the public that banks will not make too many loans and run out of cash. d. It helps to facilitate transfers of funds between banks when a customer from one bank writes a check to a customer of another bank.arrow_forward
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