Suppose an economy's financial system has $2,000,000 in deposits while banks in this system keep $400,000 in reserves. If the Central Bank mandates 7% reserve requirement: (21 points) a. What is the amount of loans this financial system is lending? b. What is the Money Multiplier?

Suppose an economy's financial system has $2,000,000 in deposits while banks in this system keep $400,000 in reserves. If the Central Bank mandates 7% reserve requirement: (21 points) a. What is the amount of loans this financial system is lending? b. What is the Money Multiplier?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Suppose an economy's financial system has $2,000,000 in deposits while banks in this
system keep $400,000 in reserves. If the Central Bank mandates 7% reserve requirement:
(21 points)
a. What is the amount of loans this financial system is lending?
b. What is the Money Multiplier?

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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?
12
Currency in Circulation (October 2020) 40.5 billion Nigerian currency Reserves (October 2020) 34.2 billion Nigeriancurrency M1 (October 2020) 2,465.9 billion Nigeriancurrency M2 (October 2020) 2,638.8 billion Nigeriancurrency Calculate the size of the actual money (M2) multiplier in October 2020. Round your answer to one decimal place. Nigeria's central bank, N. Bank, has not set a required reserve ratio (you can treat the required reserve ratio as 0%). Calcuate the excess reserve ratio for Norway in October 2020. Enter your answer in percent form without the percent sign. Round to one decimal place.
(Table: Balance Sheet) Refer to the information in the tableBalance Sheet. If the reserve ratio is 25% and the bank is exactly meeting its reserve requirement and the bank is exactly meeting its reserve requirement, loans are: A) $60,000. B) $15,000. C) $5,000. D) $80,000.
I only need Help with part (B)
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%,…
Total reserves $55 billion Transactions deposits: $600 billion Cash held by public: $400 billion Bonds held by public: $400 billion Stocks held by public: $140 billion Gross domestic product: $8 trillion Interest rate: 6 percent Required reserve ratio: 0.10 How large is the money supply (M1)? How much excess reserves are there? What is the money multiplier? What is the available lending capacity?
Consider the following bank. Cash in Vaults=$25 Its deposits at Central Bank-$275 Loans it has made to customers=$1600 Value of government bonds it owns=$100 Deposits made by its customers=$2000 What are the bank's reserves (in dollars)? (Round to two decimal places and do not enter the currency symbol. If your answer is $6.114, enter 6.11. If your answer is $6.115, enter 6.12. If appropriate, remember to enter the - sign.)
N7 2. Show 3 rounds of deposits, starting with a $2000 deposit into a checking account at bank A. Assume the required reserve rate is 5% . a. Show the effect at bank A b. Show the effect at bank B C. Show the effect at bank C d. What will be the total increase to the money supply?
7
7. For each of the following statements, indicate whether it is correct by checking the appropriate box:a) A decrease in the legal cash flow coefficient (θ) allows commercial banks to grant more loans on the basis of the same amount of deposits, leading to an increase in the value of the money multiplier and therefore in the money supply in circulation in the economy;b) When the Central Bank conducts an open market operation, consisting of the purchase of Treasury bills, the money supply in circulation in the economy increases, all other things being equal;c) If the fraction of the money supply held in the form of fiat money is 25%, and if the legal tender coefficient (θ) is 20%, then the money multiplier is 2.5;(d) If the fraction of the money supply held in the form of currency is 20% and the legal cash flow coefficient is 25%, then the money multiplier is 2.5 ;e) None of the above statements is correct.