PRINCIPLES OF MACROECONOMICS(LOOSELEAF)
7th Edition
ISBN: 9781260110920
Author: Frank
Publisher: MCG
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Chapter 10, Problem 10.2CC
To determine
Determine the value of deposits and the money supply in Country G.
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If the required reserve ratio (RRR) in U.S. is 10 percent and you deposit $5,000, which is wired from your parents’ bank account in Germany to your checking account in the U.S. National Bank, then the change in the U.S. money supply eventually should be
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a $45,000 increase.
a $5,000 increase.
no change.
a $50,000 increase.
Initially, the Republic of Gorgonzola has no commercial banking system. To make trading easier and eliminate the need for barter, the government directs the central bank of Gorgonzola to put into circulation 4,000,000 identical paper notes, called guilders. The central bank prints the guilders and distributes them to the people. At this point the Gorgonzolan money supply is 4,000,000 million guilders.In order to keep the money safe, some Gorgonzolan entrepreneurs set up a system of commercial banks. When people need to make a payment, they can either withdraw their guilders or write a check on their account. Checks give the banks permission to transfer guilders from the account of the person paying by check to the account of the person to whom the check is made out. With a system of payments based on checks, the paper guilders need never leave the banking system, although they flow from one bank to another as a depositor of one bank makes a payment to a depositor in another bank.…
If the required reserve ratio is 8%, the excess reserve ratio is 2%, and the currency-deposit ratio is 30%, by how much would money supply change if the central bank made open market sales valued at $40 million ?
Chapter 10 Solutions
PRINCIPLES OF MACROECONOMICS(LOOSELEAF)
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- According to the equation of exchange, if the money supply is $700 million, real GDP is $1,600 million, and nominal GDP is $3,220 million, then the velocity of money is equal to:arrow_forwardAssuming a reserve requirement of 20%, if the central bank of a country injects an additional $10,000 in reserves into the banking system, how much new money can the banking system create?arrow_forwardWhat would be the value of the monetary multiplier if banks hold no excess reserves, the currency-to-deposit ratio is 0.86, and the required reserve ratio for checkable deposits is 42%?arrow_forward
- Suppose the required reserve ratio is 20%. What is the maximum amount of total money supply that can be created from an initial deposit of $200? In general, why might the actual amount of total money creation be less than the maximum?arrow_forwardSuppose you found Rs. 2000 that was stored under your grandmother's mattress and you decided to deposit this money in a Bank of India. If the desired reserve ratio were 20 percent and all excess reserves were lent out. a) Calculate the money supply created by this deposition in the economy?b) Following a new deposit of Rs. 2000, what is the reserve requirement of the commercial bank?c) Suppose all the banks in the banking system collectively have Rs.20 million in cash reserves and have a desired reserve ratio of 20 percent, the maximum amount of demand deposits the banking system can support is?arrow_forwardIn an economy with commercial banks with the required ratio of the reserve to deposit of 0.2, an individual's initial deposit of 1000 units at a commercial bank will eventually generate..arrow_forward
- You just deposited $4,000 in cash into a checking account at the local bank. Assume that banks lend out all excess reserves and there are no leaks in the banking system. That is, all money lent by banks gets deposited in the banking system. Round your answers to the nearest dollar. If the reserve requirement is 20%, how much will your deposit increase the total value of checkable bank deposits? If the reserve requirement is 8%, how much will your deposit increase the total value of checkable deposits? Increasing the reserve requirement decreases the money supply. %24 %24arrow_forwardDuring the Great Depression years from 1930-1933, both the currency ratio c and the excess reserve ratio e rose dramatically. What effect did these factors have on the money multiplier?arrow_forwardSuppose the monetary base is $500 million, the required reserve ratio is 12%, and the currency-deposit ratio is 30%. What would the excess reserve ratio need to be to produce $800 million in the money supply. Holding everything else constant, what effect would an increase in the excess reserve ratio have on the money supply?arrow_forward
- Consider an economy that currently has a monetary base of $3 trillion, the required reserve ratio is 10% of deposits, banks hold an additional 65% of deposits in excess reserves and the currency-to-deposit ratio is 30%. What is the money multiplier for this economy?arrow_forwardSuppose that the T-account for First California Bank is as follows. The required reserve ratio is 10%. Suppose that the Fed buys $20,000 securities from First California Bank. As a result of the Fed’s purchase of $20,000 securities from First California Bank, how much of money supply will change? Is the change in money supply an increase or a decrease?arrow_forwardAssume no change in currency holdings as deposits change. A banking system with target reserve ratio 0.20 starts with no excess reserves. If the central bank purchases $210 in government bonds from commercial banks, what will be the ultimate change in money supply (when banks return to having no excess reserves)? Round to two decimal places and do not enter the $ sign. 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.arrow_forward
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