ECO 2020 INCLUSIVE ACCESS
21st Edition
ISBN: 9781260564617
Author: McConnell
Publisher: MCGRAW-HILL HIGHER EDUCATION
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Question
Chapter 36, Problem 4P
To determine
Relation between the Reserve ratio, Money multiplier and the money creating potential of the banking system.
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Students have asked these similar questions
Refer to the table below and assume that the Fed's reserve ratio is 10 percent and the economy is in a severe recession. Also suppose
that the commercial banks are hoarding all excess reserves (not lending them out) because of their fear of loan defaults. Finally
suppose that the Fed is highly concerned that the banks will suddenly lend out these excess reserves and possibly contribute to
inflation once the economy begins to recover and confidence is restored
(1)
(2)
Checkable
Deposits
$20,000
(3)
Actual
Reserves
(4)
Required
Reserves
(5)
(6)
(7)
Reserve Ratio,
Money-Creating Potential of Money-Creating Potential
Single Bank,-(5)
Excess
Reserves
of Banking System
(1) 10
$5,000
$2,000
$3,000
$3,000
$30,000
(2) 20
20,000
5,000
4,000
1,000
1,000
5,000
(3) 25
20,000
5,000
5,000
0
0
(4) 30
20,000
5,000
6,000
-1,000
-1,000
-3.333
a. By how many percentage points would the Fed need to increase the reserve ratio to eliminate one-third of the excess reserves?
b. What would be the size of the…
Refer to the table below and assume that the Fed's reserve ratio is 10 percent and the economy is in a severe recession. Also suppose
that the commercial banks are hoarding all excess reserves (not lending them out) because they fear loan defaults. Finally, suppose
that the Fed is highly concerned that the banks will suddenly lend out these excess reserves and possibly contribute to inflation once
the economy begins to recover and confidence returns.
(1)
Reserve
(2)
Checkable
Deposits
$ 20,000
(4)
Required
Reserves
(5)
Excess
(6) Money-Creating
Potential of Single Bank, =
(5)
$ 3,000
(7) Money-Creating
Potential of Banking
System
$ 30,000
(3) Actual
Reserves
Ratio, %
(1) 10
Reserves
$5,000
$ 2,000
$ 3,000
(2) 20
20,000
5,000
4,000
1.000
1,000
5,000
(3) 25
20,000
5,000
5,000
(4) 30
20,000
5,000
6,000
-1,000
-1,000
-3,333
Instructions: In part a, enter your answer as a whole number. In part b. round your answers to 2 decimal places. In part c. enter your
answer as an absolute value
a. By…
Like many other investors you are a “Fed Watcher” who constantly monitors any actions taken by the Fed to revise monetary policy. You believe that 3 key factors affect interest rates. Assume that the most important factor is the Fed’s monetary policy. The second most important factor is the state of the economy, which influences the demand for loanable funds. The third factor is the level of inflation, which also influences the demand for loanable funds. Because monetary policy can affect interests, it affects economic growth as well. By controlling monetary policy, the fed influences the prices of all types of securities.
The following information is available to you:
Economic growth has been consistently strong over the past few years but is beginning to slow down.
Unemployment is as low as it has been in the past decade, but it has risen slightly over the past two quarters.
Inflation has been about 5 percent annually for the past few years
The dollar has been strong
Oil…
Chapter 36 Solutions
ECO 2020 INCLUSIVE ACCESS
Ch. 36.1 - Prob. 1QQCh. 36.1 - Prob. 2QQCh. 36.1 - Prob. 3QQCh. 36.1 - Prob. 4QQCh. 36.4 - Prob. 1QQCh. 36.4 - Prob. 2QQCh. 36.4 - Prob. 3QQCh. 36.4 - Prob. 4QQCh. 36.5 - Prob. 1QQCh. 36.5 - Prob. 2QQ
Ch. 36.5 - Prob. 3QQCh. 36.5 - Prob. 4QQCh. 36 - Prob. 1DQCh. 36 - Prob. 2DQCh. 36 - Prob. 3DQCh. 36 - Prob. 4DQCh. 36 - Prob. 5DQCh. 36 - Prob. 6DQCh. 36 - Prob. 7DQCh. 36 - Prob. 8DQCh. 36 - Prob. 1RQCh. 36 - Prob. 2RQCh. 36 - Prob. 3RQCh. 36 - Prob. 4RQCh. 36 - Prob. 5RQCh. 36 - Prob. 6RQCh. 36 - Prob. 7RQCh. 36 - Prob. 8RQCh. 36 - Prob. 9RQCh. 36 - Prob. 1PCh. 36 - Prob. 2PCh. 36 - Prob. 3PCh. 36 - Prob. 4PCh. 36 - Prob. 5PCh. 36 - Prob. 6PCh. 36 - Prob. 7P
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