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.    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?   (b) After the bank has issued the maximum amount of loans, what will be the total amount of loans, deposits, and money in the economy?

Macroeconomics
13th Edition
ISBN:9781337617390
Author:Roger A. Arnold
Publisher:Roger A. Arnold
Chapter13: The Federal Reserve System
Section: Chapter Questions
Problem 8WNG
icon
Related questions
Question
  1. 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. 

 

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?

 

(b) 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?

Expert Solution
trending now

Trending now

This is a popular solution!

steps

Step by step

Solved in 3 steps with 3 images

Blurred answer
Knowledge Booster
Receipt
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.
Recommended textbooks for you
Macroeconomics
Macroeconomics
Economics
ISBN:
9781337617390
Author:
Roger A. Arnold
Publisher:
Cengage Learning
Economics (MindTap Course List)
Economics (MindTap Course List)
Economics
ISBN:
9781337617383
Author:
Roger A. Arnold
Publisher:
Cengage Learning
Survey Of Economics
Survey Of Economics
Economics
ISBN:
9781337111522
Author:
Tucker, Irvin B.
Publisher:
Cengage,
Exploring Economics
Exploring Economics
Economics
ISBN:
9781544336329
Author:
Robert L. Sexton
Publisher:
SAGE Publications, Inc
Economics: Private and Public Choice (MindTap Cou…
Economics: Private and Public Choice (MindTap Cou…
Economics
ISBN:
9781305506725
Author:
James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher:
Cengage Learning
Macroeconomics: Private and Public Choice (MindTa…
Macroeconomics: Private and Public Choice (MindTa…
Economics
ISBN:
9781305506756
Author:
James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher:
Cengage Learning