Essentials of Economics (MindTap Course List)
8th Edition
ISBN: 9781337091992
Author: N. Gregory Mankiw
Publisher: Cengage Learning
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Question
Chapter 21, Problem 11PA
Subpart (a):
To determine
The action by the Fed to increase the money supply in the economy.
Subpart (b):
To determine
The action by the Fed to increase the money supply in the economy.
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When the Fed wishes to decrease the money supply, it can
a.
increase the required reserve ratio.
b.
decrease the required reserve ratio.
c.
ask people to buy more bonds.
d.
turn additional funds over to the Treasury.
If the Required Reserve Ratio is 0.10, what does the Fed need to do to contract the supply of money by $40 billion?
Select one:
a. Buy $2 billion worth of government bonds from banks
b. Buy $4 billion worth of government bonds from banks
c. Buy $8 billion worth of government bonds from banks
d. Sell $4 billion worth of government bonds to banks
e. Sell $2 billion worth of government bonds to banks
f. Sell $8 billion worth of government bonds to banks
The Bank of Canada sets the reserve requirement, which banks must meet through deposits at the Bank of Canada and cash held at the bank. What
do these requirements achieve? Check all that apply.
They help to facilitate transfers of funds between banks when a customer from one bank writes a cheque to a customer of another.
They help to control the money supply.
They help to prevent bank runs by reassuring the public that banks will not make too many loans and run out of cash.
They mean that a bank must have one dollar of deposits for every dollar it lends.
Chapter 21 Solutions
Essentials of Economics (MindTap Course List)
Ch. 21.1 - Prob. 1QQCh. 21.2 - Prob. 2QQCh. 21.3 - Prob. 3QQCh. 21.4 - Prob. 4QQCh. 21 - Prob. 1CQQCh. 21 - Prob. 2CQQCh. 21 - Prob. 3CQQCh. 21 - Prob. 4CQQCh. 21 - Prob. 5CQQCh. 21 - Prob. 6CQQ
Ch. 21 - Prob. 1QRCh. 21 - Prob. 2QRCh. 21 - Prob. 3QRCh. 21 - Prob. 4QRCh. 21 - Prob. 5QRCh. 21 - Prob. 6QRCh. 21 - Prob. 7QRCh. 21 - Prob. 8QRCh. 21 - Prob. 9QRCh. 21 - Prob. 10QRCh. 21 - Prob. 1PACh. 21 - Prob. 2PACh. 21 - Prob. 3PACh. 21 - Prob. 4PACh. 21 - Prob. 5PACh. 21 - Prob. 6PACh. 21 - Prob. 7PACh. 21 - Prob. 8PACh. 21 - Prob. 9PACh. 21 - Prob. 10PACh. 21 - Prob. 11PACh. 21 - Prob. 12PA
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- The Bank of Key West is not going to have enough reserves at the end of the business day to meet its reserve requirement of 10%. It currently has two options to borrow money overnight in order to meet the requirement. First, it could borrow money from the Federal Reserve at a rate of 0.75% . Second, it could borrow money from other banks at a rate of 0.55%. What is the federal funds rate, and what is the discount rate? federal funds rate: % discount rate: % What will happen to other short-term interest rates if the Fed increases its federal funds rate target? They will become irrelevant. They will decrease. They will remain unchanged. O They will also increase.arrow_forwardWhen the Fed wants to reduce the supply of money circulating in the country, it will sell treasuries? True or Falsearrow_forwardThe manager of the bank where you work tells you that the bank has $100 million in deposits and $22 million dollars in loans. If the reserve requirement is 8 percent, how much is the bank holding in excess reserves?arrow_forward
- Explain the answer and/or show any calculation to prove the answer. The central bank in Malaysia has bought $100 in bonds from a bank. The reserve requirement is 25%. What is the maximum possible change in the money supply?arrow_forwardThe money supply in Leutonia is $5 billion, and the public holds no cash. The Leutonian Central Bank decides that it wants to double the money supply. It is considering an open market operation. The required reserve ratio in the country is 10%, and banks hold no excess reserves. Should the Central Bank buy or sell bonds?arrow_forwardAssume that the reserve requirement is 20 percent. Also assume that banks do nothold excess reserves and there is no cash held by the public. The Fed decides that itwants to expand the money supply by $40 million.a. If the Fed is using open-market operations, will it buy or sell bonds?b. What quantity of bonds does the Fed need to buy or sell to accomplish the goal?Explain your reasoningarrow_forward
- Suppose the fed were to sell off $500 worth of used office furniture to private citizens. Explain why the money supply and bank reserves would decrease.arrow_forwardThe Bank of Key West is not going to have enough reserves at the end of the business day to meet its reserve requirement of 10%. It currently has two options to borrow money overnight in order to meet the requirement. First, it could borrow money from the Federal Reserve at a rate of 1.35%. Second, it could borrow money from other banks at a rate of 0.55%. What is the federal funds rate, and what is the discount rate? 1.35 federal funds rate: Incorrect I 1.55 discount rate: Incorrect What will happen to other short-term interest rates if the Fed increases its federal funds rate target? They will also increase. They will remain unchanged.. They will become irrelevant. They will decrease.arrow_forwardIf the reserve requirement is 5 percent, a bank desires to hold no excess reserves, and it receives a new deposit of $10, then this bank A. must increase its required reserves by $10. B. will initially see its total reserves increase by $10.50. C. will be able to make new loans up to a maximum of $9.50. D. All of the above are correct.arrow_forward
- Below is a short version of the balance sheet at Wells Fargo. Assume this bank has a 15% reserve requirement. Wells Fargo Assets Liabilities Total Reserves $250,000 Deposits $100,000 1. What is the maximum this bank can lend out? $ 2. Mr. Smithers decides to withdraw $25,000 from his checking account here after which the bank will now make $45,000 in loans and purchase $14,000 in securities from the Fed. After all these transactions take place, answer the following questions. (Enter your response rounded to the nearest whole number). a. The bank now has Total Reserves in the amount of $☐ b. The bank now has Required Reserves in the amount of $ c. The bank now has Excess Reserves in the amount of $ d. The bank is now limited to making additional loans up to the amount of $ e. The value of the simple money multiplier is (round to just 1 decimal) f. Should this bank lend its entire remaining reserves, the banking system can see an increase in the money supply of $arrow_forwardThe people in an economy have $10 million in money. There is only one bank that all the people deposit their money in and it holds 20% of the deposits as reserves. What is the money multiplier in this economy?arrow_forwardControlling the money supply allows the Federal Reserve to a. Influence government spending and taxes and therefore consumption and investment b. Influence interest rates and therefore consumption and investment c. Influence interest rates and therefore government spending and taxes d. Influence government spending and taxes and therefore interest ratesarrow_forward
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