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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Question

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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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%,…
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. 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.
4) Listen If the money multiplier decreased from 20 to 4, then the Fed increased the reserve ratio from 5 percent to 8 percent. the Fed increased the fed funds rate from 5 percent to 8 percent. the Fed increased the reserve ratio from 5 percent to 25 percent. the Fed decreased the fed funds rate from 8 percent to 5 percent. Question 30 (1 point) )Listen The FOMC is able to increase the money supply when it buys US government securities. The increase will be larger, the larger is the reserve ratio. buys US government securities. The increase will be larger, the smaller is the reserve ratio. sells US government securities. The increase will be larger, the smaller is the reserve ratio. sells US government securities. The increase will be larger, the larger is the reserve ratio.
Answer question 1
1
Suppose that the value of money multiplier is 5.5 in Country 1. The Central Bank of Country A made an open market operation in which it purchased 1021 TL worth of securities. What will be the amount of change in the quantity of money in the economy? 19:16 ✓
39. Which of the following are ways in which banks can help businesses in the United States? Choose all that apply. Banks can reduce the money supply through the use of the money multiplier. Banks can serve as a stopgap to save struggling businesses from bankruptcy with small loans. Bank loans remove personal liability from company owners. O Bank loans are tax-deductible for businesses.
QUESTION 12 If the Federal Reserve System sells $5 billion of government securities to commercial banks, the banks' reserves would increase by $5 billion be added to net worth. decrease by $5 billion. remain the same.
45) First National Bank has $160 million in checkable deposits, $30 million in deposits with the Federal Reserve, $10 million cash in the bank vault, and $10 million in government bonds. Given the bank's minimum reserve ratio of 20% and a goal of holding zero excess reserves, how much can the bank issue in additional loans? a) $152 million b) $16 million c) $12 million d) $8 million.
128.) The Federal Reserve is considered a powerful institution because it has the power to: Act as a lender of last resort, control money supply in the long term, and print money. Create money, buy government bonds, and control long-term economic growth. Buy government bonds, act as a lender of last resort, and create money. Print money, tax, and control long-term growth
(Please all Answer.)