A Federal Reserve publication notes that when economists analyze the money supply process, they typically assume that the money multiplier is "independent of the policy actions of the central bank." Briefly explain what this assumption means? ○ A. The money multiplier has nothing to do with the money supply. B. The money multiplier is determined by a variety of factors over which the central bank has no control. C. The money multiplier is not affected by central bank actions. OD. The Fed rarely changes the money multiplier so economists typically assume that it will remain constant.
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- What is the formula for the money multiplier?Explain how to use the discount rate to expand the money supply.Some individuals have suggested raising the required reserve ratio for banks to 100 percent in a limited reserve banking system. a. What would the money multiplier be if this change was made? Assume people hold no cash. Instructions: Enter your response as a whole number. b. What effect would such a change have on the money supply? The money supply would decrease c. How could that effect be offset? By a decrease in government spending By an increase in government spending By an increase in taxes
- Question 2 on Topic 5 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 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. In which situation can the simple money multiplier value equal that of the extended money multiplier value? Justify your answer with a numerical example.5. The simple money multiplier Suppose that the Federal Reserve ("the Fed") buys $150,000 of U.S., government bonds and the required reserve ratio is 0.30. If the assumptions of the simple money multiplier hold, this will the money supply by Which of the following assumptions is necessary for the simple money multiplier to be applicable? The amount of cash people want to hold doesn't change when the money supply changes People's marginal propensity to consume does not rise with income. Borrower default rates are stable. If the correct assumption did not hold, the change in the money supply would be describes why this holds true? than you previously found. Which of the following If people kept some of the new money as cash rather than depositing it in another bank, this cash could not in turn become a bank loan. If people's marginal propensity to consume rose with income, they would save less, removing money from the financial system.Suppose the Federal Reserve sets the reserve requirement at 20%, banks hold no excess reserves, and no additional currency is held. Instructions: In part a, round your answer to two decimal places. In part b, enter your answer as a whole number. a. What is the money multiplier? b. How much will the total money supply Increase by If the Federal Reserve Increases reserves by $400 million? million c. When the Federal Reserve Increases the reserve requirement, the money multiplier will [(Click to select) reserves will have [(Click to select) effect on the money supply. and an increase in
- The figure given below shows equilibrium in a money market. Which of the following will be observed if the money supply curve shifts from S to S' while the rate of interest remains at "“r"? Figure 15.2 interest rate S* S' r* B r r' m* m m' quantity of money a. There will be an excess demand for money. b. The Fed will buy U.S. Treasury securities. c. The quantity of money demanded will fall. d. The quantity of money supplied will fall. e. There will be an excess supply of money.Suppose the Federal Reserve increases the amount of reserves by $100 million and the total money supply increases by $400 million. Instructions: Enter your answers as a whole number. a. What is the money multiplier? ______ b. Using the money multiplier from part a, how much will the money supply change if the Federal Reserve increases reserves by $40 million? $ _______ millionAssume that banks do not hold excess reserves and that households do not hold currency, so the only form of money is demand 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. A higher reserve requirement is associated with a __larger, smaller__money supply.Suppose the Federal Reserve wants to increase the money supply by $200. Again, you can assume that banks do not hold excess reserves and that households do not hold currency. If the reserve requirement is 10%, the Fed will use open-market operations to ____buy / sell_$___________worth of U.S. government bonds. 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 25%. This increase in the reserve…
- Suppose that the reserve requirement for checking deposits is 10 percent and that banks do not have hold any excess reserves. If the Fed sells 1 million of government bonds, what is the effect on the economy's reserves and money supply? Now, suppose that the Fed lowers the reserve requirement to 5 percent but the banks choose to hold another 5 percent of deposits as excess reserves. What is the overall change in the money multiplier and the money supply as a result of these actions?Currently the Fed Funds interest rate and the interest rate on reserves are virtually equal to zero. The Fed is anticipated to raise the interest rate it pays on reservessometime this Fall. What would likely happen to the Fed Funds rate if this happens? Draw a diagram of the Fed Funds market. What will happen to the money multiplier?The money market in the United States and the investment demand curve are as shown in the graphs below. Currently, the Federal Reserve has a money supply of $40 billion and the money market is in equilibrium. a. Suppose the Federal Reserve increases the money supply by $20 billion. Use the money market and investment demand graphs to show the effects of the increase in the money supply on interest rates, money demand, and investment. Instructions: In the money market graph, use the tool provided 'MS,1' to draw a new money supply curve. Plot only the endpoints of the line (2 points total). Use the tool provided 'New Equilibrium' to plot a new equilibrium interest rate.