Macroeconomics: Private and Public Choice (MindTap Course List)
16th Edition
ISBN: 9781305506756
Author: James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher: Cengage Learning
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Question
Chapter 13, Problem 18CQ
(a)
To determine
Identify the impact on M1 money supply.
(b)
To determine
Identify the maximum loan extend by the Nation’s Bank.
(c)
To determine
Identify the impact on M1 money supply.
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Students have asked these similar questions
The money multiplier declined significantly during the period 1930-1933 and also during the recent financial crisis of
2008-2010. Yet the M1 money supply decreased by 25% in the Depression period but increased by more than 20%
during the recent financial crisis. What explains the difference in outcomes?
A. The excess reserves ratio increased rapidly during the recent financial crisis.
B. There was a minimal increase in the currency ratio during the recent financial crisis.
C. There was a significant increase in the monetary base during the recent financial crisis.
OD. The overall level of deposit expansion decreased during the recent financial crisis.
Suppose Robina Bank receives a deposit of $53,589 and the reserve requirement is 3%. Answer the questions using
this information.
Round your answers to two decimal places.
What is the amount that Robina Bank must keep on hand as
required by the Federal Reserve (Fed)?
What is the amount that Robina Bank must have in excess
reserves from this initial deposit?
What is the total change in the M1 money supply from this
one deposit?
keep on hand: $
excess reserves: $
total change: $
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Suppose Robina Bank receives a deposit of $54,589 and the reserve requirement is 3%. Answer the questions using
this information.
Round your answers to two decimal places.
What is the amount that Robina Bank must keep on hand as
required by the Federal Reserve (Fed)?
keep on hand: $
What is the amount that Robina Bank must have in excess
reserves from this initial deposit?
excess reserves: S
What is the total change in the M1 money supply from this
one deposit?
total change: $
Chapter 13 Solutions
Macroeconomics: Private and Public Choice (MindTap Course List)
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Similar questions
- Humongous Bank is the only bank in the economy. The people in this economy have 20 million in money, and they deposit all their money in Humongous Bank. Humongous Bank decides on a policy of holding 100 reserves. Draw a T-account for the bank. Humongous Bank is required to hold 5 of its existing 20 million as reserves, and to loan out the rest. Draw a T-account for the bank after it has made its first round of loans. Assume that Humongous bank is part of a multibank system. How much will money supply increase with that original 19 million loan?arrow_forward1.4 Suppose you transfer $4,000 from your money market mutual fund account to your checking account. What is the immediate impact of this transfer on M1 and M2? 1.5 Why do banks create money? Do they create money to help the Federal Reserve control the money supply or is there a more basic reason? 1.6 Suppose that the required reserve ratio is 2 percent, and you deposit $100,000 of currency into Chase Bank. What is the potential increase in deposits in the banking system brought about by your deposit? What is the potential change in the money supply?arrow_forward2. Suppose the required reserve ratio is 11%, currency in circulation is $285 billion, the amount of checkable deposits is $600 billion, and excess reserves are $192 billion. Suppose the central bank is fighting rising inflation. The FOMC wants the money supply to fall by $80 billion. Assuming the ratios you calculated in question 1 are the same, calculate the size of the open market sale that would be needed to cause a change in the money supply of $80 billion.arrow_forward
- 9 If the interest rate................... opportunity cost of holding money decreases, and the quantity demanded of money increases; decreases decreases; increases £0000 increases; also increases does not change; does not change 10 If the total deposits-on-demand in Bank A total $500 mil and the required reserve ratio is 2.5 percent, then required reserves at Bank A equal more than 1,300,000,000 equal to 13,000,000 less than 13,000,000 more than 13,000,000arrow_forward2. Suppose that the required reserve ratio is 8% (i.e. rr = RR = 0.08), banks hold 5% of checking ER account deposits as excess reserves (i.e. e = = 0.05), and the currency-to-deposit ratio is 0.5 (i.e. c= = 0.5). a. Use this information to calculate the money multiplier. b. How would your answers to part (a) change if banks become concerned about risks inxolved in making loans and now choose to hold 20% of checking account deposits as excess, reserves (e=0.20)? Compute the new value of the money multiplier. c. Starting from part (a) what happens to money multiplier if people decide to hold more CUTTENCY, resulting in an increase in currency-deposit from c 0.5 to c 0.8? d. If the Fed conducts open market operations and buys $100 million in Treasury bonds from banks, what will happen to money supply using the multipliers in part (a), (b), and part (c)?arrow_forwardmacmillan learning Suppose that the legal reserve ratio set by the Fed is 10% and that the Fair Bank in Fairdealing, Missouri, initially has checkable deposit equal to $240 and a reserve account of $70. A customer of Fair Bank deposits $100 into her checking account. Fair Bank loans 80% of the deposit and places the rest in its reserves at the St. Louis Fed. For simplicity, assume the borrower received the loan as cash. How much does Fair Bank have in excess reserves after the deposit and loan? Number Place the figures below to represent changes in the accounts of Fair Bank and the Federal Reserve of St. Louis' balance sheets resulting from the deposit and loan. Hint Cash: Reserves: Loans: Property: $ +$100 +$80 Balance Sheet: Fair Bank Liabilities: Net equity: +$20 -$100 -$20 +$10 -$80 -$10 Balance Sheet: Saint Louis Fed Liabilities: Cash: Property: Loans: Previous Check Answer Next Exitarrow_forward
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