ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN: 9780190931919
Author: NEWNAN
Publisher: Oxford University Press
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Assume that banks lend out all their excess reserves . Currently, the total reserves that banks hold equal $32.8
billion. If the Federal Reserve decreases its reserve requirement from 8.2 percent to 8 percent, then there is
potential for the whole banking system to raise the money supply by:
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- The Fed can reduce the money-creating potential of the banking system by lowering the reserve requirement. True Falsearrow_forwardAssume the Fed purchases $17,450 worth of U.S. Treasury bonds from Warren Buffett, who promptly deposits the money in the First National Bank. Assuming that the required reserve ratio is 4.4 percent and banks keep zero excess reserves, the money supply in the economy will eventually:arrow_forwardAssuming that the reserve requirement imposed by the Federal Reserve Bank is 0.5, what is the money multiplier if consumers hold no cash and banks hold no excess reserves?arrow_forward
- Central banks can increase or decrease the supply of money (M1) in three ways: open market operations, changing the discount rate, or changing the fractional reserve requirement. Carefully and completely explain any TWO of these.arrow_forwardSuppose the reserve ratio of all banks is 11.7% and no money is kept in the form of currency outside banks. If the Bank of Canada purchases for 180 dollars worth of bonds from commercial banks, the money supply will increase by how much in the long run? Express your answer in dollars rounded to the nearest second decimal.arrow_forwardSuppose that rather than immediately lending out all excess reserves, banks begin holding some excess reserves in response 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 multiplier to fall from 10 to 5. Under these conditions, How Many Dollars Worth of government bonds would the Fed would need to Buy or Sell in order to increase the money supply by $100?arrow_forward
- The Fed (US central bank) has reduced the required reserve ratio (RR) to zero percent effective on March 26, 2020. Do you think the real-world money supply multiplier would become infinity? Why or why not? Explain your answer.arrow_forwardA bank currently has $100 million checkable deposits, $4 million in reserves, and $8 million in securities. If the required reserve ratio is 10 percent, is the bank meeting its legal reserve requirements? Explain.arrow_forwardThe Fed conducts a $10 million open-market purchase of government bonds. If the required reserve ratio is 10 percent, what are the largest and smallest possible increases in the money supply that could result? Explain.arrow_forward
- What could thwart the Federal Reserve's effort to expand the money supply and lower interest rates? The federal funds rate declines. Inflation expectations decline. Banks increase their holdings of excess reserves. The supply line for total bank reserves shifts to the right.arrow_forwardOne effect of the September 11, 2001, terrorist attacks was to temporarily prevent banks from accessing reserves they needed to meet the demands of their customers. (This occurred because the attacks destroyed many records as well as the computers required to access backup records, and it took affected banks several weeks to become fully operational.) In response, the Fed made many billions of dollars of reserves available to banks, gradually withdrawing the new reserves from the banking system as that system returned to normal. Suppose the Fed had not injected reserves in this way. What would likely have happened to interest rates as a result? What would have been the likely impact on the stock market and on spending by consumers and businesses? Would the unemployment rate have gone up or down? Explain your reasoning in each case.arrow_forwardThe people in an economy have $10 million in money. There is only one bank that all the people deposit their money in and it holds 20% of the deposits as reserves. What is the money multiplier in this economy?arrow_forward
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