In 2010 M1 was $2 trillion Currency was $850 Million Travelers checks were $20 Billion Demand deposits were $1030 billion The fed decides to reduce the money supply by increasing the reserve requirement ratio from 0.11 to 0.12 Banks are loaned up and the amount of currency in the economy does not change. How much does the change in the reserve requirement change the money supply? Explain

In 2010 M1 was $2 trillion Currency was $850 Million Travelers checks were $20 Billion Demand deposits were $1030 billion The fed decides to reduce the money supply by increasing the reserve requirement ratio from 0.11 to 0.12 Banks are loaned up and the amount of currency in the economy does not change. How much does the change in the reserve requirement change the money supply? Explain

Essentials of Economics (MindTap Course List)

8th Edition

ISBN:9781337091992

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter21: The Monetary System

Section: Chapter Questions

Problem 12PA

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Explain whether each of the following eventsincreases or decreases the money supply.a. The Fed buys bonds in open-market operations.b. The Fed reduces the reserve requirement.c. The Fed increases the interest rate it pays onreserves.d. Citibank repays a loan it had previously takenfrom the Fed.e. After a rash of pickpocketing, people decide tohold less currency.f. Fearful of bank runs, bankers decide to hold moreexcess reserves.g. The FOMC increases its target for the federalfunds rate.
Suppose you win on a scratch-off lottery ticket and you decide to put all of your $2,500 winnings in the bank. The reserve requirement is 10%. What is the maximum possible increase in the money supply as a result of your bank deposit? maximum increase: $ Which events could cause the increase in the money supply to be less than its potential? All money loaned out is deposited back into the banking system. Banks choose to loan out all excess reserves. SEL Some loan recipients choose to hold some cash instead of depositing all of it in banks. Banks decide to keep some excess reserves on hand. C Z MODE PAYLA I topm PEDRULESTAN SVETE D P Activate Windows Salto Settings to activate Windows
Isabella 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 less
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
Since October 2008, the Federal Reserve has paid interest on excess reserves held by banks Under these circumstances, if the Fed buys Treasury securities worth $200 million from a bank, how will the money supply be affected? Assume that the required reserve ratio is 10% and that all currency is deposited into the banking system. Choose one: A The money suppply will increase by less than $2 billion. B. The money supply will not change at all C. The money supply will increase by $2 billion. D. The money supply will increase by more than $2 billion.
Table 10-2 Last Bank of Cedar Bend Assets: Reserves Loans Liabilities: $25 000 Deposits $180 000 S155 000 efer to the Table 10-2. If the reserve requirement is 10 percent and then someone deposits $50 000 into the bank, what is the bank's reserve osition? alect one: cross a. It will have $52 000 in excess reserves. cros b. It will need to raise reserves by $5000. cros c. It will have $57 000 in excess reserves. d. It will have excess reserves of $2000.
Imagine that the federal funds rate was above the level the Federal Reserve had targeted. To move the rate back towards itť's target the Federal Reserve could O sell bonds. This selling would reduce the money supply. O buy bonds. This buying would increase the money supply. O sell bonds. This selling would increase the money supply O buy bonds. This buying would reduce the money supply.
1) While cleaning your apartment, you look under the sofa cushion and find a $50 . You deposit this in your checking account. Money multiplier is 5. Assume no Required reserves. a. What is the maximum amount that the money supply could increase?b. What is the minimum amount that the money supply could increase? 2) Q3Suppose that there is $1000 currency in circulation. Calculate the total impact on MoneySupply under each of the following scenariosi. No banking systemii. 100% reserve system, all $1000 is deposited in ABC bank.iii. Fractional reserve banking system. (RR=10%). $1000 is deposited with ABC, ABC bank decides to loan out all excess reserves
A purchase of U.S. government securities by the Fed causes A. a multiple contraction of the money supply because deposits fall by more than the amount of the securities purchased. B. a contraction of the money supply equal to the amount of the securities because all other transactions occur within the banking system. C. an expansion of the money supply equal to the amount of the securities because all other transactions occur within the banking system. D. a multiple expansion of the money supply because the required reserve ratio is less than one
If the Fed sells $1 million of bonds and banks reducetheir borrowings from the Fed by $1 million, predictwhat will happen to the money supply
a. Distinguish between legally required reserves and excess reserves. b. Why don’t banks hold a 100 percent reserves? How is the amount of reserves bank hold related to the amount of money the banking system creates? c. Define the term money multiplier? d. Assume that Lucky Bank is required to hold a 10% deposits as reserves, and there is a $3000 increase in demand deposits. Calculate the money multiplier? How much additional new demand deposits couldthe $3,000 deposit support?
1. Debit cards allow an individual to transfer funds directly in a checkable account to a merchant without writing a check. How is this different from the way credit cards work? Are either credit cards or debit cards money? Explain. 2. How would each of the following affect the demand for money? a tax on bonds held by individuals a forecast by the Central bank that interest rates will rise sharply in the next quarter 3. Trace the impact of a sale of government bonds by the Central bank on bond prices, interest rates, investment, aggregate demand, real GDP, and the price level. 4. The text notes that a 10% increase in the money supply may not increase the price level by 10% in the short run. Explain why. 5. Suppose the Central bank were required to conduct monetary policy so as to hold the unemployment rate below 4%. What implications would this have for the economy?