How large would the money supply be if the banks fully utilized their lending capacity? The money supply will fall to/ rise to $ __ billion   F) What three steps could the fed take to offset that potential growth in M1? Raise the discount rate, raise the reserve requirement, and buy bonds in the open market Lower the discount rate, lower the reserve requirement, and buy bonds in the open market Raise the discount rate, raise the reserve requirement, and sell bonds

8. Consider a hypothetical economy with a nominal GDP of $1.2 trillion, real GDP of $600 billion, and money supply of $60 billion. Suppose commercial banks are required to maintain a reserve requirement of 10% of deposits. Assume that banks do not hold excess reserves. a) Calculate the money multiplier for this economy. If the central bank buys $1 billion of government bonds, what is the effect on money supply? Show your work. b) Using the quantity theory of money, calculate the price level and the velocity of money for this economy prior to central bank action. Show your work. c) Assume that velocity is constant and real GDP increases by 2% each year. What will happen to nominal GDP and the price level next year if money supply does not change? Show your work. d) In (c), what money supply should the central bank set next year to keep the price level unchanged? Show your work. e) In (c), what money supply should the central bank set next year if it wants inflation of 5%? Show your…

5. The reserve requirement, open market operations, and the money supply Assume that banks do not hold excess reserves and that households do not hold currency, so the only form of money is checkable deposits. To simplify the analysis, suppose the banking system has total reserves of $100. Determine the simple deposit multiplier and the money supply for each reserve requirement listed in the following table. Reserve Requirement (Percent) 15 10 Simple Deposit 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. 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 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.…

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Suppose the bank expects interest rates to rise which would impact the value of theirgovernment bonds. Suppose the price of the 10 year Treasury bonds is expected tochange by 6%. Would this cause a problem for the bank? Why or why not?

Question 2 is attatched. Asking for an answer for question 4

Refer to Table A. The Fed would have to increase the reserve requirement to what percentage for this bank to have no excess reserves? A) 20% B) 18.6% C) 12.1% D) 16.67%

The reserve requirement is 10%. Suppose that the Fed purchases $50,000 worth of U.S. government securities from a bond dealer, electronically crediting the dealer's deposit account at Reliable Bank. Which of the following correctly describes the immediate effect of this transaction? A. The required reserves of Reliable Bank increase by $50,000. B. The total reserves of Reliable Bank increase by $50,000. C. Reliable Bank can make $50,000 in new loans. D. The excess reserves of Reliable Bank increase by $50,000. -ம்

Suppose the reserve requirement is 8% and a new deposit of $900 billion is made into the banking system. Create T accounts to analyze the following questions. a) Initially, reserves would increase by? b) Required reserves would increase by? c) Excess reserves would increase by? d) The first round of loans would amount to? e) The second round of loans would amount to approximately? f) The third round of loans would amount to approximately? g) For the entire macroeconomy, after the infinite rounds of loans were taken into account, money supply would increase by? h) If the Federal Reserve bought bonds worth $600 billion, money supply would increase by? i) If the Federal Reserve sold bonds worth $600 billion, money supply would decrease by?

Chapter 16: Reserves = $1,500 First national bank Loaned = $8,500 Chapter 17: Deposits = $10,000 Money Created = Amount x MM 1. If the bank has to maintain a required reeserve ratio of 10% then what is the excess reserve if any? 1/P 2. If the reserve ratio is 10% then what will be money multiplier 3. How much extra money the bank will be able to create with an addtional MS 3/4 # 1/2 0 Total Reserve = Required Reserve + Excess Reserve Money Multiplier = 1/R Where R is Reserve Ratio MD 1. What is the price level at the equilibirum? 2. What is the value of money at the equilibirum? 3. If the velocity is 4, money supply is 100, price level is 10 then what will be the output? MXV=PXY P= Price level Value of Money = 1/P