Macroeconomics
13th Edition
ISBN: 9780134735696
Author: PARKIN, Michael
Publisher: Pearson,
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Question
Chapter 25, Problem 20APA
(a)
To determine
Determine how much do the banks lend in the first round of the money creation process.
(b)
To determine
Determine the initial amount of lent flows that back to the banking system as new depositors.
(c)
To determine
Determine the initial amount of lent flows that does not back to the banking system as new depositors.
(d)
To determine
Determine why second round of lending occurs.
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Students have asked these 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 (show all work and calculations).
Humongous Bank is required to hold 5% of its existing $20 million as reserves, and to loan out the rest. What the amount of the required reserves? Assume no loans have been made, how many loans can be made now?
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Banks in New Transylvania have a desired reserve ratio of 10 percent of deposits and noexcess reserves. The currency drain ratio is 50 percent of deposits. Now suppose that thecentral bank increases the monetary base by $900 billion.i. How much do the banks lend in the first round of the money creation process?ii. How much of the initial amount loaned flows back to the banking system as newdeposits?iii. How much of the initial amount loaned does not return to the banks but is heldas currency?iv. Why does a second round of lending occur?
Banks in New Transylvania have a desired reserve ratio of 10 percent of deposits and noexcess reserves. The currency drain ratio is 50 percent of deposits. Now suppose that thecentral bank increases the monetary base by $900 billion.i. How much do the banks lend in the first round of the money creation process?ii. How much of the initial amount loaned flows back to the banking system as newdeposits?iii. How much of the initial amount loaned does not return to the banks but is heldas currency?iv. Why does a second round of lending occur?v. Calculate money multiplier in this example?vi. What is the final increase in the quantity of money?
Chapter 25 Solutions
Macroeconomics
Ch. 25.1 - Prob. 1RQCh. 25.1 - Prob. 2RQCh. 25.1 - Prob. 3RQCh. 25.1 - Prob. 4RQCh. 25.1 - Prob. 5RQCh. 25.2 - Prob. 1RQCh. 25.2 - Prob. 2RQCh. 25.2 - Prob. 3RQCh. 25.2 - Prob. 4RQCh. 25.2 - Prob. 5RQ
Ch. 25.3 - Prob. 1RQCh. 25.3 - Prob. 2RQCh. 25.3 - Prob. 3RQCh. 25.3 - Prob. 4RQCh. 25.3 - Prob. 5RQCh. 25.4 - Prob. 1RQCh. 25.4 - Prob. 2RQCh. 25.4 - Prob. 3RQCh. 25.5 - Prob. 1RQCh. 25.5 - Prob. 2RQCh. 25.5 - Prob. 3RQCh. 25.5 - Prob. 4RQCh. 25.5 - Prob. 5RQCh. 25.6 - Prob. 1RQCh. 25.6 - Prob. 2RQCh. 25.6 - Prob. 3RQCh. 25.6 - Prob. 4RQCh. 25 - Prob. 1SPACh. 25 - Prob. 2SPACh. 25 - Prob. 3SPACh. 25 - Prob. 4SPACh. 25 - Prob. 5SPACh. 25 - Prob. 6SPACh. 25 - Prob. 7SPACh. 25 - Prob. 8SPACh. 25 - Prob. 9SPACh. 25 - Prob. 10APACh. 25 - Prob. 11APACh. 25 - Prob. 12APACh. 25 - Prob. 13APACh. 25 - Prob. 14APACh. 25 - Prob. 15APACh. 25 - Prob. 16APACh. 25 - Prob. 17APACh. 25 - Prob. 18APACh. 25 - Prob. 19APACh. 25 - Prob. 20APACh. 25 - Prob. 21APACh. 25 - Prob. 22APACh. 25 - Prob. 23APACh. 25 - Prob. 24APACh. 25 - Prob. 25APACh. 25 - Prob. 26APACh. 25 - Prob. 27APA
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- 1)What is fiat money? What is commodity money? Which kind do we use? 2)Explain whether each of the following events increases or decreases the money supply. a). The State Bank of Pakistan sells bonds in open-market operations. b). The State Bank of Pakistan increases the reserve requirement. c).The State Bank of Pakistan reduces the interest rate it pays on reserves. d). MCB Bank repays a loan it had previously taken from the State Bank of Pakistan. e). After a rash of pickpocketing, people decide to hold less currency. f). Fearful of bank runs, bankers decide to hold more excess reserves.arrow_forwardSuppose that Rina makes a new cash deposit of $85,000 at her bank. Suppose that the bank is required only to keep new cash reserves equal to 25%. Then the maximum amount Rina's deposit will money supply is $ increase the decrease Which of the following assumptions must hold to ensure that the money creation process initiated by Rina's deposit reaches its potential? Check all that apply. Some borrowers cash the newly acquired funds. At least one bank in the banking system is conservative enough to keep some of its newly acquired cash deposits in its vault. All borrowers quickly spend all of their newly acquired funds. All banks in the banking system lend all of their excess reserves.arrow_forward1. Suppose that initially the money supply (M1) of the economy is made up of $1,000. a. If people hold all of their money and do not deposit any of it into the bank, what is the size of the money supply? b. Suppose that people deposit the entire $1,000 into their checking account. Assume that the banks have a 100% required reserve ratio. Now what is the size of the money supply? c. Suppose the entire $1,000 is deposited into checking accounts. Now banks have a required reserve ratio of 5%. How large could the money supply become? Show this using the Money Supply and Money Demand model. d. What is the effect on the money supply if the required reserve ratio is changed from 5% to 10% ? Show this using the Money Supply and Money Demand model.arrow_forward
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