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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 $300. Determine the money multiplier and the money supply for each reserve requirement listed in the following table. Reserve Requirement (Percent) 5 10 Money Multiplier 0.5/1/5/10/20 05/1/5/10/20 A higher reserve requirement is associated with a Money Supply (Dollars) 150/300/1,500/3,000/6,000 150/300/1,500/3,000/6,000 money supply. larger/smaller Suppose the Federal Reserve wants to increase the money supply by $200. Again, you can assume that banks do not hold excess reserves and that households do not hold currency. If the reserve requirement is 10%, the Fed will use open-market operations to U.S. government bonds. worth of buy/sell Now, suppose that, rather than immediately lending out all excess reserves, banks begin holding some excess reserves in response to uncertain economic conditions. Specifically, banks increase the percentage of deposits held as reserves from 10% to 25%. This increase in the reserve ratio causes fall/rise 1/2.5/4/10/20nder these conditions, the Fed would need to the multiplier to worth of U.S. government ▼to buy/sell bonds in order to increase the money supply by $200. Which of the following statements help to explain why, in the real world, the Fed cannot precisely control the money supply? Check all that apply. The Fed cannot control whether and to what extent banks hold excess reserves. The Fed cannot control the amount of money that households choose to hold as currency. The Fed cannot prevent banks from lending out required reserves.

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 $300. Determine the money multiplier and the money supply for each reserve requirement listed in the following table. Reserve Requirement (Percent) 5 10 Money Multiplier 0.5/1/5/10/20 05/1/5/10/20 A higher reserve requirement is associated with a Money Supply (Dollars) 150/300/1,500/3,000/6,000 150/300/1,500/3,000/6,000 money supply. larger/smaller Suppose the Federal Reserve wants to increase the money supply by $200. Again, you can assume that banks do not hold excess reserves and that households do not hold currency. If the reserve requirement is 10%, the Fed will use open-market operations to U.S. government bonds. worth of buy/sell Now, suppose that, rather than immediately lending out all excess reserves, banks begin holding some excess reserves in response to uncertain economic conditions. Specifically, banks increase the percentage of deposits held as reserves from 10% to 25%. This increase in the reserve ratio causes fall/rise 1/2.5/4/10/20nder these conditions, the Fed would need to the multiplier to worth of U.S. government ▼to buy/sell bonds in order to increase the money supply by $200. Which of the following statements help to explain why, in the real world, the Fed cannot precisely control the money supply? Check all that apply. The Fed cannot control whether and to what extent banks hold excess reserves. The Fed cannot control the amount of money that households choose to hold as currency. The Fed cannot prevent banks from lending out required reserves.

Exploring Economics
Exploring Economics
8th Edition
ISBN:9781544336329
Author:Robert L. Sexton
Publisher:Robert L. Sexton
Chapter25: Money, Banking, And The Federal Reserve System
Section: Chapter Questions
Problem 4P
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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 $300. Determine the money multiplier and the money supply for each reserve requirement listed in the following table. Reserve Requirement (Percent) 5 10 Money Multiplier 0.5/1/5/10/20 05/1/5/10/20 A higher reserve requirement is associated with a Money Supply (Dollars) 150/300/1,500/3,000/6,000 150/300/1,500/3,000/6,000 money supply. larger/smaller Suppose the Federal Reserve wants to increase the money supply by $200. Again, you can assume that banks do not hold excess reserves and that households do not hold currency. If the reserve requirement is 10%, the Fed will use open-market operations to U.S. government bonds. worth of buy/sell Now, suppose that, rather than immediately lending out all excess reserves, banks begin holding some excess reserves in response to uncertain economic conditions. Specifically, banks increase the percentage of deposits held as reserves from 10% to 25%. This increase in the reserve ratio causes fall/rise 1/2.5/4/10/20nder these conditions, the Fed would need to the multiplier to | $ worth of U.S. government to buy/sell bonds in order to increase the money supply by $200. Which of the following statements help to explain why, in the real world, the Fed cannot precisely control the money supply? Check all that apply. The Fed cannot control whether and to what extent banks hold excess reserves. The Fed cannot control the amount of money that households choose to hold as currency. O The Fed cannot prevent banks from lending out required reserves.
Transcribed Image Text: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 $300. Determine the money multiplier and the money supply for each reserve requirement listed in the following table. Reserve Requirement (Percent) 5 10 Money Multiplier 0.5/1/5/10/20 05/1/5/10/20 A higher reserve requirement is associated with a Money Supply (Dollars) 150/300/1,500/3,000/6,000 150/300/1,500/3,000/6,000 money supply. larger/smaller Suppose the Federal Reserve wants to increase the money supply by $200. Again, you can assume that banks do not hold excess reserves and that households do not hold currency. If the reserve requirement is 10%, the Fed will use open-market operations to U.S. government bonds. worth of buy/sell Now, suppose that, rather than immediately lending out all excess reserves, banks begin holding some excess reserves in response to uncertain economic conditions. Specifically, banks increase the percentage of deposits held as reserves from 10% to 25%. This increase in the reserve ratio causes fall/rise 1/2.5/4/10/20nder these conditions, the Fed would need to the multiplier to | $ worth of U.S. government to buy/sell bonds in order to increase the money supply by $200. Which of the following statements help to explain why, in the real world, the Fed cannot precisely control the money supply? Check all that apply. The Fed cannot control whether and to what extent banks hold excess reserves. The Fed cannot control the amount of money that households choose to hold as currency. O The Fed cannot prevent banks from lending out required reserves.
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