EBK MINDTAP ECONOMICS FOR ARNOLD'S ECON
13th Edition
ISBN: 9781337621335
Author: Arnold
Publisher: VST
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Chapter 13, Problem 9WNG
To determine
The change in money supply.
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Suppose that you take $150 in currency out of your pocket and deposit it in your checking account. If the required reserve ratio is 9%, what is the largest amount (in dollars) by which the money supply can increase as a result of your action?Include the $150 as part of the new money supply and assume the bank does not hold excess reserves. Give your answer to two decimals
Suppose 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?
Suppose the Federal Reserve's trading desk buys $500,000 in T-bills from a securities dealer, who then deposits the Fed's check in Best
National Bank.
Assuming that the required reserve ratio is 20%, complete the following table by showing changes in Best National Bank's balance sheet.
Best National Bank
Assets
(Dollars)
Reserves:
Addendum: Changes in Reserves
Actual reserves
Required reserves
Excess reserves
Liabilities
(Dollars)
Checking deposits:
Total liabilities
Consider the money multiplier. The maximum increase in the money supply that can result from this open market transaction is
Chapter 13 Solutions
EBK MINDTAP ECONOMICS FOR ARNOLD'S ECON
Ch. 13.1 - Prob. 1STCh. 13.1 - Prob. 2STCh. 13.1 - Prob. 3STCh. 13.3 - Prob. 1STCh. 13.3 - Prob. 2STCh. 13.3 - Prob. 3STCh. 13.3 - Prob. 4STCh. 13 - Prob. 1QPCh. 13 - Prob. 2QPCh. 13 - Prob. 3QP
Ch. 13 - Prob. 4QPCh. 13 - Prob. 5QPCh. 13 - Prob. 6QPCh. 13 - Prob. 7QPCh. 13 - Prob. 8QPCh. 13 - Prob. 9QPCh. 13 - Prob. 10QPCh. 13 - Prob. 11QPCh. 13 - Prob. 12QPCh. 13 - Prob. 1WNGCh. 13 - Prob. 2WNGCh. 13 - Prob. 3WNGCh. 13 - Prob. 4WNGCh. 13 - Prob. 5WNGCh. 13 - Prob. 6WNGCh. 13 - Prob. 7WNGCh. 13 - Prob. 8WNGCh. 13 - Prob. 9WNGCh. 13 - Prob. 10WNG
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- If a bank has $10 million in total deposits from customers, holds $3 million in reserves, and has a legal reserve requirement of 20% imposed by the Fed, which statement is TRUE? The bank's actual reserve ratio is 30%, and the bank is not fully loaned-up. The bank's actual reserve ratio is 30%, and the bank is fully loaned-up. The bank's actual reserve ratio is 20%, and the bank is fully loaned-up. The bank's actual reserve ratio is 20%, and the bank is not fully loaned-up.arrow_forwardSuppose the reserve requirement is 19%, banks hold no excess reserves, and there are no additional currency holdings. For each of the following scenarios, find the change in deposits, reserves, and loans for each bank. Instructions: Round your answers to two decimal places. a. Mickey receives his paycheck of $2,400 for the week and deposits the check at First Bank. Use the table below to show the change in assets and liabilities at First Bank resulting from this transaction. Assets Change in Reserves: $ Change in Loans: $ b. Suppose that Austin gets a loan from First Bank in the amount from the "Loans" cell in the table in part a, and uses it to buy some Jewelry from Jenny. Jenny takes the money from Austin and deposits it at Second Bank. Use the table below to show the change in assets and liabilities at Second Bank resulting from this transaction. Assets Change in Reserves: $ Change in Loans: $ Liabilities Change in Deposits: $ Assets Change in Reserves: $ Change in Loans: $…arrow_forwardSuppose again that checkable deposits started off at $400,000 in First Main Street Bank, the required reserve ratio is 15%, and no excess reserves and no cash leakage exist. You know from the previous step that, due to the sale of securities by the Fed, the money supply in the economy contracted from $400,000 to $392,000. But the contraction of the money supply does not stop with First Main Street Bank. It moves to other banks. The loan repayment that Charles made to First Main Street Bank was written on a check Second Republic Bank issued. Then, when the check cleared, the reserves of Second Republic Bank declined, and Second Republic Bank found itself reserve deficient as well. It applied loan repayments to its reserve deficiency position. The effect continued with other banks and so on. The initial removal of funds in the amount of $8,000 will cause the money supply to contract by $______. Therefore, the money supply is $______. (Hint: round the results of your calculations to the…arrow_forward
- Suppose the total reserves (RR+ER) in the banking sector is $5 trillion. The central bank has set the required reserve ratio (rr) at 5%. Assuming that the banks prefer to hold zero excess reserves (ER), answer the following questions.arrow_forwarda) Suppose that Tk.10,000 in new taka bills (never seen before) falls magically from the sky into your hands. What are the minimum increase and the maximum increase in the money supply that may result? Assume the required reserve ratio is 10 percent. Explain in details.b) Suppose you receive Tk. 10,000 from your grandmother and deposits the money in a saving account. your grandmother gave you the money by writing a check on her saving account. Would the maximum increase in the money supply still be what you found it to be in part a) where you received the money from the sky? Why or why not? Explain in details. c) Suppose that instead you getting Tk. 10,000 from the sky or a check through your grandmother, you get the money from your mother who had buried it in a can in her backyard. In this case, would the maximum increase in the money supply be what you found it to be in part a)? Why or why not? Explain in details.arrow_forwardA deposit of $100 was made to the bank as we know the money supply won't increase until the bank loans the $100. If the required reserve ratio is 6%, how much will the money supply ultimately increase once this new deposit has gone all the way through the system? What is the money multiplier in this case?arrow_forward
- The Fed conducts a $10 million open-market purchase of government bonds. If the required reserve ratio is 10 percent, what are the largest and smallest possible increases in the money supply that could result? Explain.arrow_forwardSuppose that you find $100 dollars and you deposit it into your bank account as a checkable deposit. If the require reserve ratio is 20%, how much will the money supply increase due to the initial $100 deposit in the banking system.arrow_forwardAssuming all else equal, the demand curve for reserves in an economy shifts to the left. Which of the following could explain this shift? Rapid expansion of the economy A decrease in the federal funds rate An increase in the federal funds rate Rapid contraction of the economy.arrow_forward
- Given no cash leakage and zero excess reserves held by banks, if reserves increase by $8 billion and the required reserve ratio is 9 percent, what is the resulting change in the money supply?arrow_forwardAssume the Fed sells $32,140 worth of U.S. Treasury bonds to the First National Bank. Assuming that the required reserve ratio is 10.5 percent, then the money supply in the economy will ultimately: decrease by a maximum of $32,140. decrease by a maximum of $28,765. decrease by a maximum of $257,120. decrease by a maximum of $306,095. decrease by a maximum of $273,955.arrow_forwardSuppose that the central bank has increased the money supply such that there is an additional $989699 in excess reserves. If the reserve ratio is 4.0 percent, what is the maximum increase in money supply? Round your answer to the nearest dollar.arrow_forward
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