Answered: Assume that the Habib Bank of Pakistan…

Essentials of Economics (MindTap Course List)

8th Edition

ISBN:9781337091992

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter21: The Monetary System

Section: Chapter Questions

Problem 10PA

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Assume that the Habib Bank of Pakistan has total reserves of Rs. 50 Million. Assume also that required reserves are 15 percent of checking deposits and that bank hold no excess reserves and households hold no currency. Show a T-account for Habib Bank Calculate the money multiplier and Calculate the money supply If the State Bank of Pakistan now raises required reserves to 25 percent of deposits, What will be the effect on money multiplier? . What will be the effect on Reserves? What will be the effect on money Supply?

Definition Definition Capital reserves held by banks or financial institutions over and above the reserves that are required to be maintained by the regulator toward its liabilities and for internal controls. For commercial banks, excess reserve is the amount over the standard reserve as decided by the central bank. These excess reserve funds are available in the form of cash and cash equivalents.

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