8. The reserve requirement, open market operations, and the moneysupply Consider a system of banking in which the Federal Reserve uses required reserves to control the money supply (as was the case in the United States before 2008). Assume that banks do not hold excess reserves and that households do not hold currency, so the only money exists in the form of demand deposits. To further simplify, assume the banking system has total reserves of $100. Determine the money multiplier as well as the money supply for each reserve requirement listed in the following table. Reserve Requirement (Percent) 15 10 Simple Money Multiplier A lower reserve requirement is associated with a Money Supply (Dollars) money supply. Suppose the Federal Reserve wants to increase the money supply by $100. Maintain the assumption that banks do not hold excess reserves and that households do not hold currency. If the reserve requirement is 10%, the Fed will use pen-market operations to worth of U.S. government bonds. to Now, suppose that, rather than immediately lending out all excess reserves, banks begin holding some excess reserves due to uncertain economic conditions. Specifically, banks increase the percentage of deposits held as reserves from 10% to 20%. This increase in the reserve ratio causes the money multiplier to Under these conditions, the Fed would need to worth of U.S. government bonds in order to increase the money supply by $100.

5. Money Multiplier: Given: Money Multiplier: 1+c rr+e+C required reserve ratio = 0.10 C = currency in circulation = $ 400 billion D =_ checkable deposits = $800 billion ER = excess reserve - $0.80 billion M = money supply_(M1) = C + D = $1,200 c = currency ratio = C/D = $400/$800= 0.5 e = excess reserve ratio = ER/D = $.80 b/ $800 b Using the formula for the money multiplier above, derive is the Money Multiplier?

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1.What is the money multiplier if the target reserve ratio ofbanks is 4%? 2. If the target reserve ratio for a bank is 5%, deposits are $1billion, and loans are $800 million, what are the targetreserves?$50 million•80%$40 million$200 million3. Which measurement of the money in Canada will be the largest? 4. Is there more money or currency in Canada?5.

8. The reserve requirement, open market operations, and the money supply Consider a system of banking in which the Federal Reserve uses required reserves to control the money supply (as was the case in the United States before 2008). Assume that banks do not hold excess reserves and that households do not hold currency, so the only money exists in the form of demand deposits. To further simplify, assume the banking system has total reserves of $400. Determine the money multiplier as well as the money supply for each reserve requirement listed in the following table. Reserve Requirement Simple Money Multiplier Money Supply (Percent) (Dollars) 20           10             A higher reserve requirement is associated with a    money supply.   Suppose the Federal Reserve wants to increase the money supply by $200. Maintain the assumption that banks do not hold excess reserves and that households do not hold currency. If the reserve requirement is 10%,…

3. What would be the effect of increasing the banks' reserve requirements on the money supply?

8. A bank's "required reserves" are: none of the answers given is correct held as deposits with the Federal Reserve System equal to its transactions deposits equal to its checkable deposits

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1. What is money? Discuss the characteristics of money as medium of exchange, unit of account, store of value, and means of deferred payment. 2. Define M1 and M2 3. Describe the money multiplier and explain how it works.  Give examples for each one.

39. Which of the following are ways in which banks can help businesses in the United States? Choose all that apply. Banks can reduce the money supply through the use of the money multiplier. Banks can serve as a stopgap to save struggling businesses from bankruptcy with small loans. Bank loans remove personal liability from company owners. O Bank loans are tax-deductible for businesses.