a. Explain the impact of the following events on the money market equilibrium andequilibrium interest rates:i. Decrease in the minimum reserve requirement ratio.ii. Central Bank buys government bonds in an open market operationiii. Invention of credit cards.b. Define and explain "the money multiplier" in your own words. If the moneymultiplier = 2.2 and the central bank increases the monatery base by 10 millionTL, what will be the total increase in the quantity of money in the economy?c. Define and explain "the quantity theory of money" in your own words.

a. Explain the impact of the following events on the money market equilibrium and equilibrium interest rates: i. Decrease in the minimum reserve requirement ratio. ii. Central Bank buys government bonds in an open market operation iii. Invention of credit cards.

a. Explain the impact of the following events on the money market equilibrium and equilibrium interest rates: i. Decrease in the minimum reserve requirement ratio. ii. Central Bank buys government bonds in an open market operation iii. Invention of credit cards.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

See similar textbooks

Similar questions

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.
a) 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. i) Calculate the extended money multiplier ii) 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. b) In which situation can the simple money multiplier value equal that of the extended money multiplier value? Justify your answer with a numerical example.
2. Consider the following: B= 1,000 (billion) cr=0.6 TT= 0.15 a. What is the money multiplier, m? b. With this money multiplier, what would the money supply be if the monetary base was 1,000 (billion)? c. Imagine if cr increased to 0.8. What does this mean, in words? How would the money multiplier be affected (if at all)? What about the money supply?
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
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.
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. Suppose that in 2018 customers deposit $4,000 into their bank accounts. Based on the extended money multiplier calculated in part (i), what is the calculation of the total amount which the money supply in the banking system will eventually increase to?
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.
Suppose the banks in an economy have a reserve-deposit ratio of 10 percent and the currencydeposit ratio is 20 percent.a. If the Central Bank increases the monetary base by $400 through open market operations, what will be the increase in the money supply?b. If the Central Bank increases the discount rate and firms react by increasing the reservedeposit ratio to 15 percent, what is the change in the multiplier? Will this change increase or decrease the money supply?
3. Suppose the total reserves (RR+ER) in the banking sector is $5 trillion. The central bank has set the required reserve ratio (rr) at 5%. Assuming that the banks prefer to hold zero excess reserves (ER), answer the following questions. a. Calculate the money multiplier. b. What is the total money supply at the end of the deposit expansion process? c. Calculate what would happen to the money supply if the central bank causes the total reserves to increase by $1 trillion.
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.
3 Please Answer the following two Economics Questions: 1. Consider an economy where the ratio of required reserves to bank deposits isr = 0.15, the ratio of currency holdings to deposits is c = 0.2, the ratio of bankexcess reserves to deposits is e = 0.25 and the monetary base is 100. Showhow to calculate the value of the M1 money multiplier predicted by the moneymultiplier model. Explain your answer 2. If monetary velocity is 5, the GDP price deflator equals 2 and real GDP is 250,what is the money supply? Explain your answer
Q1. i. Central Bank deposits of commercial banks are called High Powered Money or Monetary Base because: A. Is the money that the Central Bank controls B. The deposit that a Central Bank makes in a commercial bank triggers the money creation mechanism through the money multiplier C. Because it is the only reserve in the economy D. Because it is highly liquid ii. In descending order of liquidity (from more liquid to less liquid) the proper ordering would be: A. Real Estate, domestic currency, Treasury bills B. Treasury bills, domestic currency, Real Estate C. Domestic currency, Treasury Bills, Real Estate D. The liquidity ordering is irrelevant, since gold is less liquid than money but is the top reserve asset