Foundations of Economics (8th Edition)
8th Edition
ISBN: 9780134486819
Author: Robin Bade, Michael Parkin
Publisher: PEARSON
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Chapter 27, Problem 8MCQ
To determine
To find:
The option that correctly explains the money multiplier.
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11 . Let there be $100 new deposit in a bank.
a) Calculate the money multiplier for a reserve requirement ratio of 20% for five iterations. Identify the total money created, the total required reserves, and the total excess reserves.
b) Assume the currency to deposit ratio is 10%. Recalculate the money multiplier from the previous question a for five iterations. Identify the total money created, the total required reserves, and the total excess reserves. Show your work
A. If the Tax Multiplier is -7, what is the Government Spending Multiplier? Show work.
B. The Required Reserve Ratio of Denmark is 2%. What is the Money Multiplier? Show work.
C. Suppose the National Bank of Denmark doubles the Required Reserve Ratio to 4%, what would be the new Money Multiplier? Compare your answer in part (d) to your answer in part (c), what do you conclude about the relationship between the Required Reserve Ratio and the Total Money Supply in the economy?
Thank you so much! :)
(b) Examine the effect on money multiplier and money supply when there is a sharp increase in the currency ratio.
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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- a. Assume that all the money is held as a deposit while banks keep 10% of the deposit as a reserve. Estimate the money multiplier and money supply in the economy. b. Assume that the public is holding 40% of their assets as currency while depositing the remaining in banks, while banks keep 10% of deposit as a reserve. Estimate the money multiplier and money supply in the economy.arrow_forwardA decreae in the required reserve ratio_____-excess reserves and ____ the quantity of money increases,increases decreases,increases increases,decreases decreases,decreasesarrow_forward3. 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. a. Calculate the money multiplier. b. What is the total money supply at the end of the deposit expansion process? c. Calculate what would happen to the money supply if the central bank causes the total reserves to increase by $1 trillion.arrow_forward
- i Peter Kotrodimos puts $100 into his checking account. The reserve requirement for the bank is.20. and the maximum the money supply would After this transaction, demand deposits increased by increase with this transaction would be A) $100; $600 B) $0; $400 $100; $400 D) $100; $500arrow_forwardBanks in New Transylvania have a desired reserve ratio of 10 percent of deposits and no excess reserves. The currency drain ratio is 50 percent of deposits. Now suppose that the central bank increases the monetary base by $900 billion. How much of the initial amount loaned does not return to the banks but is held as currency? Why does a second round of lending occur? Calculate money multiplier in this example? What is the final increase in the quantity of money? Give typing answer with explanation and conclusionarrow_forwardSince October 2008, the Federal Reserve has paid interest on excess reserves held by banks Under these circumstances, if the Fed buys Treasury securities worth $200 million from a bank, how will the money supply be affected? Assume that the required reserve ratio is 10% and that all currency is deposited into the banking system. Choose one: A The money suppply will increase by less than $2 billion. B. The money supply will not change at all C. The money supply will increase by $2 billion. D. The money supply will increase by more than $2 billion.arrow_forward
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