If the Federal Reserve purchases $100 million worth of government securities in open market operations, what is the maximum amount of change in the money supply if the reserve requirement is 8% and banks hold no excess reserves? Group of answer choices Decrease by $1.25 billion Increase by $1.25 billion Decrease by $1.15 billion Increase by $1.15 billion

If the Federal Reserve purchases $100 million worth of government securities in open market operations, what is the maximum amount of change in the money supply if the reserve requirement is 8% and banks hold no excess reserves? Group of answer choices Decrease by $1.25 billion Increase by $1.25 billion Decrease by $1.15 billion Increase by $1.15 billion

Economics (MindTap Course List)

13th Edition

ISBN:9781337617383

Author:Roger A. Arnold

Publisher:Roger A. Arnold

Chapter13: The Federal Reserve System

Section: Chapter Questions

Problem 5WNG

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Most people in the country of Classica tend to keep $3 out of every $100 of their cash holdings in their wallets. The central bank has instructed the commercial banks to also hold 4% of all bank deposits as reserves. Calculate the extended money multiplier Extended Money Multiplier = (1+C/D) / (R/D+C/D) (1+0.03) / (0.04+0.03) = 14.71 The extended money multiplier is 14.71 Suppose that in 2018 customers deposit $4,000 into their bank accounts. Based on the extended money multiplier calculated in part (i), calculate the total amount which the money supply in the banking system will eventually increase to. Show all steps involved in the calculation.
During the financial crisis, banks excess reserves [beyond what is required by regulatory reserve requirements] exploded. If the Federal Reserve Bank of New York purchased $1 billion in U.S. Treasury Bills in this environment and the reserve requirement is 20%, then the change in the total money supply will be approximately: Group of answer choices an increase of a bit more than $1 billion. a decrease of a bit more than $1 billion. an increase of a bit less than $5 billion. a decrease of a bit less than $5 billion
If the Required Reserve Ratio is 0.10, what does the Fed need to do to contract the supply of money by $40 billion? Select one: a. Buy $2 billion worth of government bonds from banks b. Buy $4 billion worth of government bonds from banks c. Buy $8 billion worth of government bonds from banks d. Sell $4 billion worth of government bonds to banks e. Sell $2 billion worth of government bonds to banks f. Sell $8 billion worth of government bonds to banks
A) Explain whether each of the following events increases or decreases the money supply. 1) The State Bank of Pakistan sells bonds in open-market operations. 2) The State Bank of Pakistan increases the reserve requirement. 3) The State Bank of Pakistan reduces the interest rate it pays on reserves. 4) MCB Bank repays a loan it had previously taken from the State Bank of Pakistan. 5) After a rash of pickpocketing, people decide to hold less currency. 6) Fearful of bank runs, bankers decide to hold more excess reserves.
If the required reserve ratio is 12.5%, and Elon Musk has deposited $5 billion cash to his bank account. What happens to the money supply in the economy? A) nothing happens in money supply since both cash and bank deposits are money anyway. B) Money supply increases by $50 billion. C) Money supply increases by $40 billion. D) Money supply increases by $35 billion.
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 $100. Determine the money multiplier and the money supply for each reserve requirement listed in the following table. Reserve Requirement Money Multiplier Money Supply (Percent) (Dollars) 25 10 A lower reserve requirement is associated with a money supply. Suppose the Federal Reserve wants to increase the money supply by $100. 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 worth of U.S. government bonds. Now, suppose that, rather than immediately lending out all excess reserves, banks begin…
Paying Interest on Reserves-Problem Solving Exercise 3 (Algo) The U.S. economy is experiencing a recession. In order to smooth the economy the Federal Reserve would like to adjust the interest rate it pays on reserves. If the Fed has a goal of increasing the money supply by $25 billion, what should the change in excess reserves be if the reserve requirement is 10%? Instructions: Enter your answer as a positive number rounded to two decimal places. Excess reserves will need to (Click to select) by $ billion.
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 $300. Determine the money multiplier and the money supply for each reserve requirement listed in the following table. Reserve Requirement Money Multiplier Money Supply (Percent) (Dollars) 5 10 A higher reserve requirement is associated with a money supply. 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 worth of U.S. government bonds. Now, suppose that, rather than immediately lending out all excess reserves, banks begin…
The banking system currently has $10 billion of reserves, none of which are excess. People hold only deposits and no currency, and the reserve requirement is 10 percent. If the Fed raises the reserve requirement to 12.5 percent and at the same time buys $1 billion worth of bonds, then by how much does the money supply change? a) It falls by $12 billion. b) It falls by $19 billion. c) It falls by $21 billion. d) It rises by $19 billion.
Suppose that Rina makes a new cash deposit of $85,000 at her bank. Suppose that the bank is required only to keep new cash reserves equal to 25%. Then the maximum amount Rina's deposit will money supply is $ increase the decrease Which of the following assumptions must hold to ensure that the money creation process initiated by Rina's deposit reaches its potential? Check all that apply. Some borrowers cash the newly acquired funds. At least one bank in the banking system is conservative enough to keep some of its newly acquired cash deposits in its vault. All borrowers quickly spend all of their newly acquired funds. All banks in the banking system lend all of their excess reserves.
What steps can the Federal Reserve take to increase the money supply? a) The Federal Reserve can reduce personal income tax rates to encourage households to spend more money b) The Federal Reserve can require all banks to close by 4:00 pm on weekdays and remain closed on weekends. c) The Federal Reserve can increase reserves requirements for banks d) The Federal Reserve and raise the discount e) The Federal Reserve can buy US Treasury securities e) The Federal Reserve
QUESTION 8 Let the total amount of currency in the economy be $1,298.4 billion, the total amount of commercial banks' reserves at the Fed be $2,621.2 billion, and the total amount of deposits be $10,647.9 billion. Then money multiplier in this economy is Note: Type in your answer rounded to two decimal places, i.e., your answer must be of the form "999.99". I will not be able to fix correct answers that were entered incorrectly, such as "999.999" or "999,99" or "999". In case the last digit in the correct answer is zero, e.g., "999.90" or "999.00", Blackboard may automatically delete it and you should not do anything about it. In case of percentages, do not type in the percentage symbol "%". If your answer is a negative number, type a dash in front of your answer, i.e, "-999.99".