Assume you deposit $100 of cash from your wallet in your checking account. Assume the banking reserve ratio is 20% (for all banks) and all banks loan out all deposits (after reserving 20%). How much was the money supply before your deposit? How much would the money supply be after your deposit works through the banking system? How much did the money supply grow as a result of your initial deposit? (Note: Remember the money supply is currency + deposits in checking accounts (i.e, demand deposits)). Show your calculations.

Assume you deposit $100 of cash from your wallet in your checking account. Assume the banking reserve ratio is 20% (for all banks) and all banks loan out all deposits (after reserving 20%). How much was the money supply before your deposit? How much would the money supply be after your deposit works through the banking system? How much did the money supply grow as a result of your initial deposit? (Note: Remember the money supply is currency + deposits in checking accounts (i.e, demand deposits)). Show your calculations.

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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4. a) Suppose that Tk.10,000 in new taka bills (never seen before) falls magically from the sky into your hands. What are the minimum increase and the maximum increase in the money supply that may result? Assume the required reserve ratio is 10 percent.b) Suppose you receive Tk. 10,000 from your grandmother and deposits the money in a saving account. your grandmother gave you the money by writing a check on her saving account. Would the maximum increase in the money supply still be what you found it to be in part a) where you received the money from the sky? Why or why not?c) Suppose that instead you getting Tk. 10,000 from the sky or a check through your grandmother, you get the money from your mother who had buried it in a can in her backyard. In this case, would the maximum increase in the money supply be what you found it to be in part a)? Why or why not?
9 Suppose the required reserve ratio is 20%. a. What is the simple money multiplier? b. Based on the multiplier calculated in part a, if the central bank makes open market purchases of $20 billion, how much will the money supply increase? c. What will happen to interest rates? d. How will the central bank know when to stop making open market purchases? e. Suppose banks, on average, hold an extra 5 percent of deposits as excess reserves, above the required reserve ratio. What would the actual money multiplier be?
The T-sheet below is for the Next to Last National Bank, a commercial bank. The required reserve ratio is 20% of deposits. (a) How much are excess reserves for this bank? (b) Suppose that this bank receives a deposit inflow of $20 million. Suppose also that you are certain that no deposit outflow will occur for several years and that the national economy will continue to grow. To maximize profits, what should you do? Show and explain the new T-sheet.
12)Assume the banking system has $100 billion in demand deposits and $10 billion in reserves. In addition, assumethat the required reserve ratio is 5%. Answer the following questions:a) How much excess reserves are in this system?b) What is the value of the money multiplier?c) What is the maximum amount of change in demand deposit creation that could take place if the bankingsystem lent out all of its excess reserves.
1. a) Suppose that Tk.10,000 in new taka bills (never seen before) falls magically from the sky into your hands. What are the minimum increase and the maximum increase in the money supply that may result? Assume the required reserve ratio is 10 percent. b) Suppose you receive Tk. 10,000 from your grandmother and deposits the money in a saving account. your grandmother gave you the money by writing a check on her saving account. Would the maximum increase in the money supply still be what you found it to be in part a) where you received the money from the sky? Why or why not? c) Suppose that instead you getting Tk. 10,000 from the sky or a check through your grandmother, you get the money from your mother who had buried it in a can in her backyard. In this case, would the maximum increase in the money supply be what you found it to be in part a)? Why or why not? 2. a) Suppose growth rate of Real GDP is 6% and the growth rate of velocity is 3%. If Bangladesh Bank wants to have a 5 %…