Assume there is an economy with a single bank, and the central bank sets the reserve requirement ratio at 10%. Assume also that the only bank had no transactions (i.e., no loans, reserves, or deposits) prior to an individual who deposits $10,000 of currency with the bank. Show your work a. As a result of this deposit, calculate the amount of required reserves, actual reserves, and excess reserves. b. What is the size of the money multiplier for this economy? c. After the bank has issued the maximum amount of loans, what will be the total amount of loans, deposits, and money in the economy? d. If the central bank wants to increase the money supply by $6,000, should it buy or sell bonds? Also, how many bonds should it buy or sell?
Assume there is an economy with a single bank, and the central bank sets the reserve requirement ratio at 10%. Assume also that the only bank had no transactions (i.e., no loans, reserves, or deposits) prior to an individual who deposits $10,000 of currency with the bank. Show your work a. As a result of this deposit, calculate the amount of required reserves, actual reserves, and excess reserves. b. What is the size of the money multiplier for this economy? c. After the bank has issued the maximum amount of loans, what will be the total amount of loans, deposits, and money in the economy? d. If the central bank wants to increase the money supply by $6,000, should it buy or sell bonds? Also, how many bonds should it buy or sell?
Chapter25: Money Creation
Section: Chapter Questions
Problem 8SQP
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- Assume there is an economy with a single bank, and the central bank sets the reserve requirement ratio at 10%. Assume also that the only bank had no transactions (i.e., no loans, reserves, or deposits) prior to an individual who deposits $10,000 of currency with the bank. Show your work
a. As a result of this deposit, calculate the amount of
b. What is the size of the money multiplier for this economy?
c. After the bank has issued the maximum amount of loans, what will be the total amount of loans, deposits, and money in the economy?
d. If the central bank wants to increase the money supply by $6,000, should it buy or sell bonds? Also, how many bonds should it buy or sell?
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