Assume that banks do not hold excess reserves and that households do not hold currency, so the only form of money is checkable deposits. To simplify the analysis, suppose the banking system has total reserves of $500.   (A). Determine the simple money multiplier and the money supply for each reserve requirement listed in the following table. Reserve requirement (percent) Simple money multiplier Money Supply 25     10       (B). Now, suppose that, rather than immediately lending out all excess reserves, banks begin holding some excess reserves in response to uncertain economic conditions. Specifically, banks increase the percentage of deposits held as reserves from 10% to 25%. This increase in the reserve ratio causes the multiplier to ______(fall or rise) to (1, 2.5, 4, 10) Under these conditions, the Fed would need to __ (buy or sell) $_____ (fill in blank) worth of U.S. government bonds in order to increase the money supply by $200.

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A: A.   Total Reserve = $400  Money supply = Total reserve × multiplier  When the reserve requirement =…

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A:

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Q: Assume that banks do not hold excess reserves and that households do not hold currency, so the only…

A: Money multiplier can be calculated by using the following formula.

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A:

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A: A)  Reserve Requirement  Multiplier  Money Supply 25 1/0.25 = 4 4*500 = 2000 10 1/0.10 = 10…

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A: Given,   Total reserve = $400  Reserve requirement = 20%

Q: Assume that banks do not hold excess reserves and that households do not hold currency, so the only…

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A: Money supply can be calculated by using the following formula.

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