1. Suppose total deposits of the commercial banking sector were $4,000 billion, the reserve requirement were...

1. Suppose total deposits of the commercial banking sector were $4,000 billion, the reserve requirement were 10%, excess reserves were $600 billion, and currency holdings were $1,000 billion. a. Calculate the ratio of excess reserves to deposits (%) and currency holdings to deposits (%). What is the value of the monetary base? b. Calculate the money multiplier for each of these three changes. For each case, what would be the impact on the money supply (deposits + currency) of a $200 billion increase in the monetary base? i. The reserve requirement was reduced to 5% (everything else remains the same as in part ‘a’). ii. The ratio of excess reserves rose to 25% (everything else remains the same as in part ‘a’). iii. The ratio of currency holdings to deposits fell to 15% (everything else remains the same as in part ‘a’)

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Rahul Sunny answered 1 year ago

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