Multiple choice Assume that people decide to hold more money as cash instead of investing or depositing it. Whichstatement below best describe the possible impact of this action on the money multiplier? The moneymultiplier...a) will decrease because of the increase in the currency drain ratio.b) will increase as the currency drain ratio increases.c) will increase because of the decrease in the currency drain ratio.d) will increase as the deposits decrease.

The money multiplier is a concept that measures the potential expansion of the money supply in an…

Assume that people decide to hold more money as cash instead of investing or depositing it. W statement below best describe the possible impact of this action on the money multiplier? The mc multiplier... a) will decrease because of the increase in the currency drain ratio. b) will increase as the currency drain ratio increases. c) will increase because of the decrease in the currency drain ratio. d) will increase as the deposi

Assume that people decide to hold more money as cash instead of investing or depositing it. W statement below best describe the possible impact of this action on the money multiplier? The mc multiplier... a) will decrease because of the increase in the currency drain ratio. b) will increase as the currency drain ratio increases. c) will increase because of the decrease in the currency drain ratio. d) will increase as the deposi

Macroeconomics: Private and Public Choice (MindTap Course List)

16th Edition

ISBN:9781305506756

Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

Publisher:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

Chapter13: Money And The Banking System

Section: Chapter Questions

Problem 16CQ

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Use simplified money multiplier formula to answer this question. Assume banks do not keep excess reserves. Suppose households $100 bln in cash and $800 bln in bank deposits. Money multiplier in this economy is equal 10.What happens with money supply when households use $10 bln to fund their digital wallets with cash to set up accounts on such platforms as Apple wallet, Google wallet, Samsung wallet, Venmo, and others.
Suppose Cindy purchases a meal at a local Baton Rouge restaurant and pays with her debit card. Everything else held constant, this purchase will cause the money multiplier to _____ and the money supply to _____. Select one: A. remain unchanged; increase B. remain unchanged; remain unchanged C. remain unchanged; decrease D. increase; increase E. decrease; decrease F. decrease; increase G. increase; decrease
Consider an economy that currently has a monetary base of $3 trillion, the required reserve ratio is 10% of deposits, banks hold an additional 65% of deposits in excess reserves and the currency-to-deposit ratio is 30%. What is the money multiplier for this economy?
The money multiplier defines how much: Responses A. consumer demand increases following an increase in government spending. B. the money supply increases when investment banks underwrite corporate bond offerings. C. the money supply increases in response to an increase in bank deposits. D. GDP increases as a result of an increase in investment expenditure.
Suppose the monetary base doubles and the money multiplier doubles as well. Consequently, the money supply Remains the same More than doubles Doubles Less than doubles
Assume that Lucky Bank is required to hold a 10% deposits as reserves is a $3000 increase in deman deposits. Calculate the money multiplier? How much additional new demand deposits could the $3000 deposit support?
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.
Why is the money multiplier considered to be a potential multiplier rather than an indication of exactly how much multiplication should be expected?
The reserve requirement is 10% and Jack withdraws $5,000 from his checkable bank deposit to pay for a trip to New York City. Assume that banks do not hold any excess reserves and that the public holds no currency, only checkable bank deposits. By how much will the money supply contract as a result of the withdrawal?
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 $400. Determine the money multiplier and the money supply for each reserve requirement listed in the following table. Reserve Requirement Money Multiplier Money Supply (Percent) (Dollars) 20 10 A higher reserve requirement is associated with a money supply. Suppose the Federal Reserve wants to increase the money supply by $200. Again, you can assume that banks do not hold excess reserves and that households do not hold currency. If the reserve requirement is 10%, the Fed will use open-market operations to worth of U.S. government bonds. Now, suppose that, rather than immediately lending out all excess reserves, banks begin holding some excess reserves in response to uncertain economic conditions.…
to calculate the money multiplier at each of the following values for the reserve requirement. 3. RR = 0 (no reserve is necessary) RR = 0
Assume that banks do not hold excess reserves and that households do not hold currency, so the only form of money is demand deposits. To simplify the analysis, suppose the banking system has total reserves of $300. Determine the money multiplier and the money supply for each reserve requirement listed in the following table. A higher reserve requirement is associated with a __larger, smaller__money supply.Suppose the Federal Reserve wants to increase the money supply by $200. Again, you can assume that banks do not hold excess reserves and that households do not hold currency. If the reserve requirement is 10%, the Fed will use open-market operations to ____buy / sell_$___________worth of U.S. government bonds. Now, suppose that, rather than immediately lending out all excess reserves, banks begin holding some excess reserves due to uncertain economic conditions. Specifically, banks increase the percentage of deposits held as reserves from 10% to 25%. This increase in the reserve…