The money multiplier declined significantly during the period 1930-1933 and also during the recent financial crisis of2008-2010. Yet the M1 money supply decreased by 25% in the Depression period but increased by more than 20%during the recent financial crisis. What explains the difference in outcomes?A. The excess reserves ratio increased rapidly during the recent financial crisis.B. There was a minimal increase in the currency ratio during the recent financial crisis.C. There was a significant increase in the monetary base during the recent financial crisis.OD. The overall level of deposit expansion decreased during the recent financial crisis.

Money multiplier refers to the increase in the money supply in an economy resulting from an initial…

The money multiplier declined significantly during the period 1930-1933 and also during the recent financial crisis of 2008-2010. Yet the M1 money supply decreased by 25% in the Depression period but increased by more than 20% during the recent financial crisis. What explains the difference in outcomes?

The money multiplier declined significantly during the period 1930-1933 and also during the recent financial crisis of 2008-2010. Yet the M1 money supply decreased by 25% in the Depression period but increased by more than 20% during the recent financial crisis. What explains the difference in outcomes?

Brief Principles of Macroeconomics (MindTap Course List)

8th Edition

ISBN:9781337091985

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter11: The Monetary System

Section: Chapter Questions

Problem 2PA

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Humongous Bank is the only bank in the economy. The people in this economy have 20 million in money, and they deposit all their money in Humongous Bank. Humongous Bank decides on a policy of holding 100 reserves. Draw a T-account for the bank. Humongous Bank is required to hold 5 of its existing 20 million as reserves, and to loan out the rest. Draw a T-account for the bank after it has made its first round of loans. Assume that Humongous bank is part of a multibank system. How much will money supply increase with that original 19 million loan?
8. The money multiplier declined significantly during the period 1930–1933 and alsoduring the recent financial crisis of 2008–2010. Yet the M1 money supply decreasedby 25% in the Depression period but increased by more than 20% during the recentfinancial crisis. What explains the difference in outcomes?
The money multiplier declined significantly during theperiod 1930–1933 and also during the recent financial crisis of 2008–2010. Yet the M1 money supplydecreased by 25% in the Depression period but increasedby more than 20% during the recent financial crisis.What explains the difference in outcomes?
2. Suppose that the required reserve ratio is 8% (i.e. rr = RR = 0.08), banks hold 5% of checking ER account deposits as excess reserves (i.e. e = = 0.05), and the currency-to-deposit ratio is 0.5 (i.e. c= = 0.5). a. Use this information to calculate the money multiplier. b. How would your answers to part (a) change if banks become concerned about risks inxolved in making loans and now choose to hold 20% of checking account deposits as excess, reserves (e=0.20)? Compute the new value of the money multiplier. c. Starting from part (a) what happens to money multiplier if people decide to hold more CUTTENCY, resulting in an increase in currency-deposit from c 0.5 to c 0.8? d. If the Fed conducts open market operations and buys $100 million in Treasury bonds from banks, what will happen to money supply using the multipliers in part (a), (b), and part (c)?
2. Suppose the required reserve ratio is 11%, currency in circulation is $285 billion, the amount of checkable deposits is $600 billion, and excess reserves are $192 billion. Suppose the central bank is fighting rising inflation. The FOMC wants the money supply to fall by $80 billion. Assuming the ratios you calculated in question 1 are the same, calculate the size of the open market sale that would be needed to cause a change in the money supply of $80 billion.
9 If the interest rate................... opportunity cost of holding money decreases, and the quantity demanded of money increases; decreases decreases; increases £0000 increases; also increases does not change; does not change 10 If the total deposits-on-demand in Bank A total $500 mil and the required reserve ratio is 2.5 percent, then required reserves at Bank A equal more than 1,300,000,000 equal to 13,000,000 less than 13,000,000 more than 13,000,000
1. Explain why you think the Federal Reserve Bank tracks M1 and M2 2. Humongous Bank is the only bank in the economy. The people in this economy have $20 million in money, and they deposit all their money in Humongous Bank. a. Humongous Bank is required to hold 5% of its existing $20 million as reserves, and to loan out the rest. Draw a T-account for the bank after this first round of loans has been made. b. Assume that Humongous bank is part of a multibank system. How much will money supply increase with that original loan of $19 million (show your work)? 3. Suppose that consumers have a major change in their consumption/savings preferences. As a result of a serious recession they decide to consume less and save more. Illustrate a graph that shows how this would affect the demand and supply for borrowing money with credit. 4. Explain the difference between how you would characterize bank deposits and loans as assets and liabilities on your own personal balance sheet and how a bank…
11 . Let there be $100 new deposit in a bank. a) Calculate the money multiplier for a reserve requirement ratio of 20% for five iterations. Identify the total money created, the total required reserves, and the total excess reserves. b) Assume the currency to deposit ratio is 10%. Recalculate the money multiplier from the previous question a for five iterations. Identify the total money created, the total required reserves, and the total excess reserves. Show your work
ou just deposited $4,000 in cash into a checking account at the local bank. Assume that banks lend out all excess reserves and there are no leaks in the banking system. That is, all money lent by banks gets deposited in the banking system. Round your answers to the nearest dollar. If the reserve requirement is 1212%, how much will your deposit increase the total value of checkable bank deposits? $ If the reserve requirement is 44%, how much will your deposit increase the total value of checkable deposits? $ Increasing the reserve requirement the money supply.
Define asset liquidity. Provide an example of a highly liquid and highly illiquid asset. 16.What is a key advantage of money over other financial assets such as stocks, bonds, precious metals or real estate? 17.What are the two major components of the M1 money supply?
In 2007-08, the financial crisis led money multiplier to and the money supply to which would cause the excess reserves ratio to and depositors are likely to their holdings of currency. O decrease; decrease: increase; increase O increase; increase; decrease; decrease: decrease; increase; decrease: increase; O increase; decrease; increase; decrease; « Previous Next Quiz saved at 9:26am Submit Quiz
Suppose that the following information describes the banking system in Belarus. Currency = $940 billion Checking Deposits = $1,475 billion Total Reserves = S198 billion Required Reserves = $177 billion (a) Calculate the level of the monetary base (MB) in the banking system of Belarus. (b) Given the above data calculate the money multiplier (m). Round vour answer to 2 decimal places.