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’)

Expert Solution

Rahul Sunny answered 1 year ago

Suppose total deposits of the commercial banking sector were $4,000 billion, the reserve requirement were 10%,...

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...

Suppose a bank has $1 million in deposits, a reserve requirement of 10%, and bank reserves...

Suppose a bank has $1 million in deposits, a reserve requirement of 10%, and bank reserves of $300,000. The bank has excess reserves of: Question 16 options: a) $200,000. b) $100,000. c) $300,000. d) $50,000. f the economy is producing at an output level below full employment, the government should __ spending and __ taxes. Question 9 options: a) increase; decrease b) decrease; decrease c) decrease; increase d) increase; increase The following diagram represents the economy experiencing inflation at point...

2. A commercial bank has deposits of $100,000 and total reserves of $31,000. The required reserve...

2. A commercial bank has deposits of $100,000 and total reserves of $31,000. The required reserve ratio is 15%. All other banks are fully loaned up. Show this bank’s balance sheet. Calculate actual reserves (AR), required reserves (RR), and excess reserves (ER). What is the largest loan this bank can make? If the initial loan is made, what is the maximum expansion of the money supply that can occur if other banks also lend as much as possible? Where did...

Suppose that the total checkable deposits in the entire banking system of an economy is $100...

Suppose that the total checkable deposits in the entire banking system of an economy is $100 billion. The total required reserves are $10 billion. Further, banks do not hold any excess reserves, and individuals do not hold any cash in the economy. A) In this economy, if the Federal Reserve buys $10 million worth of government securities, then by how much will the money supply increase? B) Will the change in money supply be greater or lesser than what you...

The reserve requirement rate is 5%. A bank’s deposits are $200 and it is holding $25...

The reserve requirement rate is 5%. A bank’s deposits are $200 and it is holding $25 in reserves. Then, The required reserves are $10 The excess reserves are $15 The money multiplier is 20 (a), (b) and (c) are correct (a) and (b) are correct (a) and (c) are correct (b) and (c) are correct

2. Assume that Susan deposits $3000 of cash into bank A and the reserve requirement is...

2. Assume that Susan deposits $3000 of cash into bank A and the reserve requirement is 10%. a. Complete a simple T-account for bank A showing this deposit and asume that bank A lends out its excess reserves to Bill. b. Bill uses the entire loan to buy groceries at Rouses Supermarket and Rouses deposits it in bank B. Suppose bank B lends out all its excess reserves to Maria, and her loan ends up in bank C. Fill in...

Suppose that there is currently $900 billion in circulation, $700 billion in deposits, $30 billion in...

Suppose that there is currently $900 billion in circulation, $700 billion in deposits, $30 billion in excess reserves, and $80 billion in required reserves. a. Calculate each of the following: Reserves _______900 + 700 = $1600 billion____________________ Monetary Base _______________________ Money Multiplier ______________________ Money Supply ________________________ b. Suppose that banks have borrowed $40 billion of their total reserves from the Fed. What’s the non-borrowed Monetary Base? c. Suppose that banks eliminate their excess reserves, using them to payback most of...

a. Explain the difference between 100-percent-reserve banking and fractional-reserve banking. b. Suppose that the Federal Reserve...

a. Explain the difference between 100-percent-reserve banking and fractional-reserve banking. b. Suppose that the Federal Reserve wants to increase the money supply in the economy. What is the main channel for the Fed to do this?

Part 9 If deposits in the banking system are $540, while the reserve ratio is 0.2...

Part 9 If deposits in the banking system are $540, while the reserve ratio is 0.2 and the currency to deposit ratio is 0.09, then: a) Calculate the total demand for high powered money. b) Calculate the money multiplier. (1 mark each for sub-parts a and b (no word count requirement applies) - Part 9 worth 2 marks) Additional Requirements 1. Honesty pledge that you have completed the Course Experience Survey (CES). Note: We value your feedback and want to...

Suppose that currency in circulation is $100 billion, the amount of checkable deposits is $900 billion,...

Suppose that currency in circulation is $100 billion, the amount of checkable deposits is $900 billion, and excess reserves are $180 billion and the required reserve ratio is 10%. Calculate the money supply, monetary base, the currency deposit ratio, the excess reserve ratio, and the money multiplier M MB C/D ER/D m Suppose depositors lose confidence in the banking system and withdraw $800 billion. How will values found in question 1 change? M MB C/D ER/D m Suppose depositors regain...

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