we assumed that banks hold only reserves and loans as assets for simplicity. Now suppose that...

we assumed that banks hold only reserves and loans as assets for simplicity. Now suppose that banks use x fraction of their deposits to buy treasuries. Derive the money multiplier as a function of x, currency-deposit ratio cdr, and actual reserve ratio ar. How does an increase in x affect money multiplier, monetary base, and money supply?

Expert Solution

Rahul Sunny answered 2 years ago

Suppose the Fed requires banks to hold 9 percent of their deposits as reserves. A...

Suppose the Fed requires banks to hold 9 percent of their deposits as reserves. A bank has $18,000 of excess reserves and then sells the Fed a Treasury bill for $9,000. How much does this bank now have to lend out if it decides to hold only required reserves? Selected Answer: c. $27,000 Answers: a. $9,000 b. $26,190 c. $27,000

Assume that banks do not hold excess reserves and that households do not hold currency, so the only form of money is checkable deposits.

6. The reserve requirement, open market operations, and the money supply Assume that banks do not hold excess reserves and that households do not hold currency, so the only form of money is checkable deposits. To simplify the analysis, suppose the banking system has total reserves of $400. Determine the money multiplier and the money supply for each reserve requirement listed in the following table A higher reserve requirement is associated with a _______ money supply.Suppose the Federal Reserve wants to increase...

Suppose the Federal Reserve sets the reserve requirement at 10 percent, banks hold no excess reserves,...

Suppose the Federal Reserve sets the reserve requirement at 10 percent, banks hold no excess reserves, and no additional currency is held.Instructions: Enter your answers as a whole number. If you are entering any negative numbers be sure to include a negative sign (-) in front of those numbers.a. What is the money multiplier?b. By how much will the total potential money supply change if the Federal Reserve changes the amount of reserves by -$50 million? $ c. Suppose the Federal...

) Suppose commercial banks in Botswana hold two billion pula (P2billion) in excess reserves. Assume that...

) Suppose commercial banks in Botswana hold two billion pula (P2billion) in excess reserves. Assume that there is no cash in hand and that the required reserve ratio is 10%. What is the maximum amount of new deposits that can be created by the banking system? iv) Distinguish between demand-pull inflation and cost-push inflation. v) Discuss the economic costs of unemployment vi) Briefly discuss the functions of the bank of Botswana vii) Distinguish between frictional unemployment and demand deficient unemployment...

Suppose the Federal Reserve sets the reserve requirement at 10 percent, banks hold no excess reserves,...

Suppose the Federal Reserve sets the reserve requirement at 10 percent, banks hold no excess reserves, and no additional currency is held. Instructions: In part a, round your answer to 2 decimal place. In parts b and c, enter your answers as whole numbers. Include any negative signs if necessary. a. What is the money multiplier? b. By how much will the total money supply change if the Federal Reserve changes the amount of reserves by -$50 million? ...

Assume that banks do not hold excess reserves and that households do not hold currency, so...

Assume that banks do not hold excess reserves and that households do not hold currency, so the only form of money is demand deposits. To simplify the analysis, suppose the banking system has total reserves of $300. Determine the money multiplier and the money supply for each reserve requirement listed in the following table. Reserve Requirement Simple Money Multiplier Money Supply (Percent) (Dollars) 20 ______ _____ 10 ______ ______ A higher reserve requirement is associated with a (smaller or larger)...

Assume that banks do not hold excess reserves and that households do not hold currency, so...

Assume that banks do not hold excess reserves and that households do not hold currency, so the only form of money is demand deposits. To simplify the analysis, suppose the banking system has total reserves of $500. Determine the money multiplier and the money supply for each reserve requirement listed in the following table. Reserve Requirement Simple Money Multiplier Money Supply (Percent) (Dollars) 25 10 A lower reserve requirement is associated with a money supply. Suppose...

Assume that banks do not hold excess reserves and that households do not hold currency, so...

Assume that banks do not hold excess reserves and that households do not hold currency, so the only form of money is demand deposits. To simplify the analysis, suppose the banking system has total reserves of $500. Determine the money multiplier and the money supply for each reserve requirement listed in the following table. Reserve Requirement Simple Money Multiplier Money Supply (Percent) (Dollars) 5 10 A lower reserve requirement is associated with a money supply. Suppose...

Suppose the current require reserve ratio is 10% and all commercial banks hold 5% excess reserves....

Suppose the current require reserve ratio is 10% and all commercial banks hold 5% excess reserves. Suppose the Fed had an open market sale of U.S. government securities for $100,000 to Megabank (a commercial bank). (20 points) How does this change affect the balance sheets of Megabank and the Fed? (Write out two t-accounts to show the changes, one for Megabank and one for the Fed. How much change in monetary base is caused by this open market operation? Also,...

Tyler Savings Banks has the following balance sheet. Assets Liabilities Reserves 80 Deposits 400 Loans 420...

Tyler Savings Banks has the following balance sheet. Assets Liabilities Reserves 80 Deposits 400 Loans 420 Capital 100 Total 500 Total 500 If the bank suffers a deposit outflow of $50 with a required reserve ratio on deposits of 10%, what action can be taken? Show, using a revised balance sheet. Explain Assets Liabilities

Question

we assumed that banks hold only reserves and loans as assets for simplicity. Now suppose that...

Solutions

Expert Solution

Related Solutions

Suppose the Fed requires banks to hold 9 percent of their deposits as reserves. A...

Assume that banks do not hold excess reserves and that households do not hold currency, so the only form of money is checkable deposits.

Suppose the Federal Reserve sets the reserve requirement at 10 percent, banks hold no excess reserves,...

) Suppose commercial banks in Botswana hold two billion pula (P2billion) in excess reserves. Assume that...

Suppose the Federal Reserve sets the reserve requirement at 10 percent, banks hold no excess reserves,...

Assume that banks do not hold excess reserves and that households do not hold currency, so...

Assume that banks do not hold excess reserves and that households do not hold currency, so...

Assume that banks do not hold excess reserves and that households do not hold currency, so...

Suppose the current require reserve ratio is 10% and all commercial banks hold 5% excess reserves....

Tyler Savings Banks has the following balance sheet. Assets Liabilities Reserves 80 Deposits 400 Loans 420...