To impact on the money supply if the required reserve ratio is 10%.

Question

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Answer 1

Question

Definition Definition Capital reserves held by banks or financial institutions over and above the reserves that are required to be maintained by the regulator toward its liabilities and for internal controls. For commercial banks, excess reserve is the amount over the standard reserve as decided by the central bank. These excess reserve funds are available in the form of cash and cash equivalents.

Chapter 12, Problem 1TY

To determine

To describe:To impact on the money supply if the required reserve ratio is 10%.

Expert Solution & Answer

Answer to Problem 1TY

In order to attain a 10% reserve ratio, a deposit of 12$ million will lead to the increase in the money supply by a factor of 10 times.

Explanation of Solution

Money multiplier can be defined as a cash multiplier is one of different firmly related proportions of commercial bank cash to central bank cash under a partial hold banking framework.

Change in the money supply

In the economy it can be assumed that the banks had no excess reserves and public or firms don’t hold money in hand. A person having a 12$ million worth treasure and deposits the similar amount in a bank with a 10% of reserved ratio.

So, in order to calculate the money supply, the following equation can be employed:

M_S = D×1/m ……………….. (1)

Here,

M_S₌money supply

D= deposit change value

M= required reserve ratio

So, according to the given condition the change in the money supply can be calculated as;

M_S₌12000000×1/0.10

=120,000,000

Thus the deposit of 12$ million will lead to an increase in the money supply by a factor of 10, that will be 120 $ million.

Economics Concept Introduction

Introduction: In monetary economics, a cash multiplier is one of different firmly related proportions of commercial bank cash to central bank cash under a partial hold banking framework. It identifies with the most extreme measure of commercial bank cash that can be made, given a specific measure of central bank cash.

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Students have asked these similar questions

Suppose banks keep no excess reserves and no individuals or firms hold on to cash. If someone suddenly discovers $12 million in buried treasure and deposits it in a bank, explain what will happen to the money supply if required reserve ratio is 10 percent.

The task I am struggling with: Tracy Williams deposits $500 that was in her sock drawer into a checking account at the local bank. The reserve ratio is 10%. a) how dies the deposit initially change the T-account of the local bank? How does it change the money supply? b) If the bank maintains a reserve ratio of 10%, how will it respond to the new deposit? c) if every time the bank makes a loan, the loan results in a new checkable bank deposit in a different bank equal to the amount of the loan, by how much could the total money supply in the economy expand in response to Tracy´s initial cash deposit of $500? Thank you very much for your help.

Suppose the money supply is currently $500 billion and the Fed wishes to increases it by $100 billion. Given a required reserve ration of 0.25, what should it do? If it decided to change the money supply by changing the required reserve ratio, what change should it make? Why may the Fed be reluctant to change the reserve requirement?

Answer 2

Question

Definition Definition Capital reserves held by banks or financial institutions over and above the reserves that are required to be maintained by the regulator toward its liabilities and for internal controls. For commercial banks, excess reserve is the amount over the standard reserve as decided by the central bank. These excess reserve funds are available in the form of cash and cash equivalents.

Chapter 12, Problem 1TY

To determine

To describe:To impact on the money supply if the required reserve ratio is 10%.

Expert Solution & Answer

Answer to Problem 1TY

In order to attain a 10% reserve ratio, a deposit of 12$ million will lead to the increase in the money supply by a factor of 10 times.

Explanation of Solution

Money multiplier can be defined as a cash multiplier is one of different firmly related proportions of commercial bank cash to central bank cash under a partial hold banking framework.

Change in the money supply

In the economy it can be assumed that the banks had no excess reserves and public or firms don’t hold money in hand. A person having a 12$ million worth treasure and deposits the similar amount in a bank with a 10% of reserved ratio.

So, in order to calculate the money supply, the following equation can be employed:

M_S = D×1/m ……………….. (1)

Here,

M_S₌money supply

D= deposit change value

M= required reserve ratio

So, according to the given condition the change in the money supply can be calculated as;

M_S₌12000000×1/0.10

=120,000,000

Thus the deposit of 12$ million will lead to an increase in the money supply by a factor of 10, that will be 120 $ million.

Economics Concept Introduction

Introduction: In monetary economics, a cash multiplier is one of different firmly related proportions of commercial bank cash to central bank cash under a partial hold banking framework. It identifies with the most extreme measure of commercial bank cash that can be made, given a specific measure of central bank cash.

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Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 3

Question

Definition Definition Capital reserves held by banks or financial institutions over and above the reserves that are required to be maintained by the regulator toward its liabilities and for internal controls. For commercial banks, excess reserve is the amount over the standard reserve as decided by the central bank. These excess reserve funds are available in the form of cash and cash equivalents.

Chapter 12, Problem 1TY

To determine

To describe:To impact on the money supply if the required reserve ratio is 10%.

Expert Solution & Answer

Answer to Problem 1TY

In order to attain a 10% reserve ratio, a deposit of 12$ million will lead to the increase in the money supply by a factor of 10 times.

Explanation of Solution

Money multiplier can be defined as a cash multiplier is one of different firmly related proportions of commercial bank cash to central bank cash under a partial hold banking framework.

Change in the money supply

In the economy it can be assumed that the banks had no excess reserves and public or firms don’t hold money in hand. A person having a 12$ million worth treasure and deposits the similar amount in a bank with a 10% of reserved ratio.

So, in order to calculate the money supply, the following equation can be employed:

M_S = D×1/m ……………….. (1)

Here,

M_S₌money supply

D= deposit change value

M= required reserve ratio

So, according to the given condition the change in the money supply can be calculated as;

M_S₌12000000×1/0.10

=120,000,000

Thus the deposit of 12$ million will lead to an increase in the money supply by a factor of 10, that will be 120 $ million.

Economics Concept Introduction

Introduction: In monetary economics, a cash multiplier is one of different firmly related proportions of commercial bank cash to central bank cash under a partial hold banking framework. It identifies with the most extreme measure of commercial bank cash that can be made, given a specific measure of central bank cash.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 4

Question

Definition Definition Capital reserves held by banks or financial institutions over and above the reserves that are required to be maintained by the regulator toward its liabilities and for internal controls. For commercial banks, excess reserve is the amount over the standard reserve as decided by the central bank. These excess reserve funds are available in the form of cash and cash equivalents.

Chapter 12, Problem 1TY

To determine

To describe:To impact on the money supply if the required reserve ratio is 10%.

Expert Solution & Answer

Answer to Problem 1TY

In order to attain a 10% reserve ratio, a deposit of 12$ million will lead to the increase in the money supply by a factor of 10 times.

Explanation of Solution

Money multiplier can be defined as a cash multiplier is one of different firmly related proportions of commercial bank cash to central bank cash under a partial hold banking framework.

Change in the money supply

In the economy it can be assumed that the banks had no excess reserves and public or firms don’t hold money in hand. A person having a 12$ million worth treasure and deposits the similar amount in a bank with a 10% of reserved ratio.

So, in order to calculate the money supply, the following equation can be employed:

M_S = D×1/m ……………….. (1)

Here,

M_S₌money supply

D= deposit change value

M= required reserve ratio

So, according to the given condition the change in the money supply can be calculated as;

M_S₌12000000×1/0.10

=120,000,000

Thus the deposit of 12$ million will lead to an increase in the money supply by a factor of 10, that will be 120 $ million.

Economics Concept Introduction

Introduction: In monetary economics, a cash multiplier is one of different firmly related proportions of commercial bank cash to central bank cash under a partial hold banking framework. It identifies with the most extreme measure of commercial bank cash that can be made, given a specific measure of central bank cash.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 5

Chapter 12, Problem 1TY

To determine

To describe:To impact on the money supply if the required reserve ratio is 10%.

Expert Solution & Answer

Answer to Problem 1TY

In order to attain a 10% reserve ratio, a deposit of 12$ million will lead to the increase in the money supply by a factor of 10 times.

Explanation of Solution

Money multiplier can be defined as a cash multiplier is one of different firmly related proportions of commercial bank cash to central bank cash under a partial hold banking framework.

Change in the money supply

In the economy it can be assumed that the banks had no excess reserves and public or firms don’t hold money in hand. A person having a 12$ million worth treasure and deposits the similar amount in a bank with a 10% of reserved ratio.

So, in order to calculate the money supply, the following equation can be employed:

M_S = D×1/m ……………….. (1)

Here,

M_S₌money supply

D= deposit change value

M= required reserve ratio

So, according to the given condition the change in the money supply can be calculated as;

M_S₌12000000×1/0.10

=120,000,000

Thus the deposit of 12$ million will lead to an increase in the money supply by a factor of 10, that will be 120 $ million.

Economics Concept Introduction

Introduction: In monetary economics, a cash multiplier is one of different firmly related proportions of commercial bank cash to central bank cash under a partial hold banking framework. It identifies with the most extreme measure of commercial bank cash that can be made, given a specific measure of central bank cash.

Answer 6

Chapter 12, Problem 1TY

To determine

To describe:To impact on the money supply if the required reserve ratio is 10%.

Expert Solution & Answer

Answer to Problem 1TY

In order to attain a 10% reserve ratio, a deposit of 12$ million will lead to the increase in the money supply by a factor of 10 times.

Explanation of Solution

Money multiplier can be defined as a cash multiplier is one of different firmly related proportions of commercial bank cash to central bank cash under a partial hold banking framework.

Change in the money supply

In the economy it can be assumed that the banks had no excess reserves and public or firms don’t hold money in hand. A person having a 12$ million worth treasure and deposits the similar amount in a bank with a 10% of reserved ratio.

So, in order to calculate the money supply, the following equation can be employed:

M_S = D×1/m ……………….. (1)

Here,

M_S₌money supply

D= deposit change value

M= required reserve ratio

So, according to the given condition the change in the money supply can be calculated as;

M_S₌12000000×1/0.10

=120,000,000

Thus the deposit of 12$ million will lead to an increase in the money supply by a factor of 10, that will be 120 $ million.

Economics Concept Introduction

Introduction: In monetary economics, a cash multiplier is one of different firmly related proportions of commercial bank cash to central bank cash under a partial hold banking framework. It identifies with the most extreme measure of commercial bank cash that can be made, given a specific measure of central bank cash.

Answer 7

Chapter 12, Problem 1TY

To determine

To describe:To impact on the money supply if the required reserve ratio is 10%.

Answer 8

Expert Solution & Answer

Answer to Problem 1TY

In order to attain a 10% reserve ratio, a deposit of 12$ million will lead to the increase in the money supply by a factor of 10 times.

Answer 9

Expert Solution & Answer

Answer 10

Expert Solution & Answer

Answer 11

Explanation of Solution

Money multiplier can be defined as a cash multiplier is one of different firmly related proportions of commercial bank cash to central bank cash under a partial hold banking framework.

Change in the money supply

In the economy it can be assumed that the banks had no excess reserves and public or firms don’t hold money in hand. A person having a 12$ million worth treasure and deposits the similar amount in a bank with a 10% of reserved ratio.

So, in order to calculate the money supply, the following equation can be employed:

M_S = D×1/m ……………….. (1)

Here,

M_S₌money supply

D= deposit change value

M= required reserve ratio

So, according to the given condition the change in the money supply can be calculated as;

M_S₌12000000×1/0.10

=120,000,000

Thus the deposit of 12$ million will lead to an increase in the money supply by a factor of 10, that will be 120 $ million.

Answer 12

Economics Concept Introduction

Introduction: In monetary economics, a cash multiplier is one of different firmly related proportions of commercial bank cash to central bank cash under a partial hold banking framework. It identifies with the most extreme measure of commercial bank cash that can be made, given a specific measure of central bank cash.

Answer 13

Ch. 12 - Prob. 1TY Ch. 12 - Prob. 2TY Ch. 12 - Prob. 3TY Ch. 12 - Prob. 4TY Ch. 12 - Prob. 1DQ Ch. 12 - Prob. 2DQ Ch. 12 - Prob. 3DQ Ch. 12 - Prob. 4DQ Ch. 12 - Prob. 5DQ Ch. 12 - Prob. 6DQ

To impact on the money supply if the required reserve ratio is 10%.

To describe:To impact on the money supply if the required reserve ratio is 10%.

Answer to Problem 1TY

Explanation of Solution

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