How does the reserve ratio change if the Fed increases the required reserve ratio? How does...

How does the reserve ratio change if the Fed increases the required reserve ratio?

How does the currency-deposit ratio change if people decide to keep more of their money in cash rather than depositing it?

If people decide to hold zero currency (cu→0, meaning the currency-deposit ratio goes to zero), what is the relationship between the money supply and the monetary base (what is the money multiplier)?

If people decide to hold all of their money as currency and never make deposits (cu→∞, meaning the currency-deposit ratio goes to infinity), what is the relationship between the money supply and the monetary base (what is the money multiplier)?

Expert Solution

Rahul Sunny answered 2 years ago

Assume the Fed has established a 10% required reserve ratio for checkable deposits. The Fed does...

Assume the Fed has established a 10% required reserve ratio for checkable deposits. The Fed does not require banks to hold reserves for savings deposits. Further, assume that The First Idaho Bank is a primary dealer, which means that it is able to buy and sell securities directly to the U.S. Federal Reserve (Fed). Remember any bank in the U.S. can borrow from the Fed. Provided below is the balance sheet for The First Bank of Idaho: ASSETS LIABILITES AND...

At the Fed, someone proposes to cut the required reserve ratio from 9.6% to 8%. But...

At the Fed, someone proposes to cut the required reserve ratio from 9.6% to 8%. But the others prefer to buy bonds from the market instead, citing the ability of a fractional reserve banking system to create money. If the policy objective of the Fed is to pump another 214 millions of dollars into the economy, without changing the required reserve ratio, at least how many millions worth of bonds should the Fed plan to buy? Round your answer to...

Let’s assume the Fed’s required reserve ratio is 15% and the Fed wants to expand the...

Let’s assume the Fed’s required reserve ratio is 15% and the Fed wants to expand the money supply by $20B. How would the Fed do it? Show your work. What problems might the Fed run into?

1 A)Assume the required reserve ratio is 20% and the Open Market Committee of the FED...

1 A)Assume the required reserve ratio is 20% and the Open Market Committee of the FED buys $300 billion in bonds from the public. Assuming banks give out as many loans as possible, what is the total change in the money supply? What is the total change in Transaction Accounts? If the M1 was original $8500 billion, what is the new M1 ( After the change)? You must show your work. B)Assume the required reserve ratio is 10% and the...

11. If the Bank of Namibia increases the required reserve ratio from 5% to 10%, the...

11. If the Bank of Namibia increases the required reserve ratio from 5% to 10%, the value of the credit multiplier (a) increases from 10 to 20 (b) decreases from 10 to 5 (c) decreases from 20 to 10 (d) increases from 5 to 10 12. Suppose Emerald deposits N$10 000 at Standard Bank. If the reserve requirement is 5%, maximum deposit expansion for the commercial banking system is: (a) N$200 000 (b) N$205 000 (c) N$150 000 (d) N$100...

Suppose that a bank has a required reserve ratio (target reserve ratio) of 10%, reserves of...

Suppose that a bank has a required reserve ratio (target reserve ratio) of 10%, reserves of $2.2 billion, loans of $17.8 billion, deposits of $20 billion, and no other liabilities or assets. a. (4 points) What is the amount of loans at equilibrium? b. (4 points) Suppose that the Bank of Canada’s currency issue (legal tender) is $52 billion, private bank deposits at the Bank of Canada are $2 billion, currency in circulation is $36 billion, and the target reserve...

If the Federal Reserve increases the interest rate on bank deposits at the Fed, banks will...

If the Federal Reserve increases the interest rate on bank deposits at the Fed, banks will want to hold Select one: a. fewer reserves, so the reserve ratio will rise. b. more reserves, so the reserve ratio will rise. c. fewer reserves, so the reserve ratio will fall. d. more reserves, so the reserve ratio will fall.

Suppose the Federal Reserve System has a required reserve ratio of 10% and there are no...

Suppose the Federal Reserve System has a required reserve ratio of 10% and there are no excess reserves in the system. Explain the impact of the following action: The Federal Open Market Committee conducts an open market purchase of $25 million of U.S. securities from the commercial banking system. Identify the impact on both the Money Supply and on Aggregate Demand. Be specific.

Suppose that the legal reserve ratio set by the Fed is 10% and that the Fair Bank in Fairdealing

Suppose that the legal reserve ratio set by the Fed is 10% and that the Fair Bank in Fairdealing, Missouri, initially exhibits checkable deposit accounts of $250 and a reserve account of $70.a) A customer of Fair Bank deposits $100 into her checking account. Fair Bank loans 80% of the deposit and places the rest in its reserves at the St. Louis Fed. How much have in excess reserves after the deposit and loan?b) Place the figures below to represent...

Assume that the currency-deposit ratio is 0.5, the required reserve ratio is 0.1, and the excess...

Assume that the currency-deposit ratio is 0.5, the required reserve ratio is 0.1, and the excess reserves to deposit ratio is 0.15. If the monetary base is $2 trillion, find (a) the amount of currency in circulation in billions of dollars; (b) required reserves in billions of dollars; and (c) excess reserves in billions of dollars. (d) simple deposit multiplier which ignores leakages. The amount of currency in circulation in billions of dollars: Required reserves in billions of dollars: Excess...

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