Foundations of Economics (8th Edition)
8th Edition
ISBN: 9780134486819
Author: Robin Bade, Michael Parkin
Publisher: PEARSON
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Question
Chapter 27, Problem 10SPPA
To determine
To calculate:
The change in quantity of money, the change in amount of new money in currency and the change in bank deposits.
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The desired reserve ratio is 10 percent of deposits, and the currency drain ratio is 1 percent of deposits
The central bank makes an open market purchase of $3 million of securities.
Calculate the change in the quantity of money. How much of the new money is currency and how much is
bank deposits?
>>> Answer to 2 decimal places
The quantity of money changes by $27.55 million.
of the new money created,
million is bank deposits
Explain how to use an open market operation to expand the money supply.
“Whenever currency is deposited in a commercial bank, cash goes out of circulation and, as a result, the supply of money is reduced.” Do you agree? Explain why or why not.
Chapter 27 Solutions
Foundations of Economics (8th Edition)
Ch. 27 - Prob. 1SPPACh. 27 - Prob. 2SPPACh. 27 - Prob. 3SPPACh. 27 - Prob. 4SPPACh. 27 - Prob. 5SPPACh. 27 - Prob. 6SPPACh. 27 - Prob. 7SPPACh. 27 - Prob. 8SPPACh. 27 - Prob. 9SPPACh. 27 - Prob. 10SPPA
Ch. 27 - Prob. 11SPPACh. 27 - Prob. 12SPPACh. 27 - Prob. 13SPPACh. 27 - Prob. 1IAPACh. 27 - Prob. 2IAPACh. 27 - Prob. 3IAPACh. 27 - Prob. 4IAPACh. 27 - Prob. 5IAPACh. 27 - Prob. 6IAPACh. 27 - Prob. 7IAPACh. 27 - Prob. 8IAPACh. 27 - Prob. 9IAPACh. 27 - Prob. 10IAPACh. 27 - Prob. 11IAPACh. 27 - Prob. 1MCQCh. 27 - Prob. 2MCQCh. 27 - Prob. 3MCQCh. 27 - Prob. 4MCQCh. 27 - Prob. 5MCQCh. 27 - Prob. 6MCQCh. 27 - Prob. 7MCQCh. 27 - Prob. 8MCQ
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- The economy of Elmendyn contains 900 $1 bills. If people hold all money as currency, the quantity of money is . If people hold all money as demand deposits and banks maintain 100 percent reserves, the quantity of money is . If people hold equal amounts of currency and demand deposits and banks maintain 100 percent reserves, the quantity of money is . If people hold all money as demand deposits and banks maintain a reserve ratio of 12.5 percent, the quantity of money is . If people hold equal amounts of currency and demand deposits and banks maintain a reserve ratio of 12.5 percent, the quantity of money is .arrow_forwardImagine that the Bank of Canada creates $1,000 of new money. Canadians do not hold any of their money in currency. The reserve requirement is 20% and banks like to hold 5% excess reserves. a) Calculate the total of new deposits created from this $1,000 of new money. b) Calculate the new money supply created form this $1,000 of new money.arrow_forwardIf the required reserve ratio (RRR) in U.S. is 10 percent and you deposit $5,000, which is wired from your parents’ bank account in Germany to your checking account in the U.S. National Bank, then the change in the U.S. money supply eventually should be Group of answer choices a $45,000 increase. a $5,000 increase. no change. a $50,000 increase.arrow_forward
- The desired reserve ratio is 1 percent of deposits, and the currency drain ratio is 2 percent of deposits. The central bank makes an open market purchase of $4 million of securities. Calculate the change in the quantity of money. How much of the new money is currency and how much is bank deposits? >>> Answer to 2 decimal places. ..... The quantity of money changes by 5 million.arrow_forwardUse the following table to determine the levels of M1 and M2 In the United States. Money Categories in the United States Asset Currency Demand deposits Money market funds other checkable deposits Savings deposits Small time deposits Traveler's checks Instructions: Enter your answers as a whole number. a. Calculate the M1 money supply. $ billion b. Calculate the M2 money supply. Amount (billions of dollars) $76 75 42 35 442 20 3 billionarrow_forwardDetermine the size of the M1 money supply using the following information. Currency plus Traveler’s checks $25 million Negotiable CDs $10 million Demand deposits $13 million Other checkable deposits $12 millionarrow_forward
- When currency is equal to $100 billion and reserves are equal to $200 billion, and we know that the money multiplier is equal to 2.5, then the money supply will be equal toarrow_forwardUse the following table to determine the levels of M1 and M2 in the United States. Money Categories in the United States Asset Amount (billions of dollars) Currency $84 Demand deposits 81 Money market funds 45 Other checkable deposits 38 Savings deposits 466 Small time deposits 23 Traveler's checks 5 Instructions: Enter your answers as a whole number. a. Calculate the M1 money supply. $ billion b. Calculate the M2 money supply. $ billionarrow_forwardYou take $300 you had kept under your mattress and deposit it in your bank account. Suppose this $300 stays in the banking system as reserves and banks hold reserves equal to 15 percent of deposits. The total amount of deposits in the banking system increases by $ supply increases by $. and the moneyarrow_forward
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