In Macroland there is €2,000,000 in currency. The public holds half of the currency and banks hold the rest. as reserves. If banks' desired reserve/deposit ratio is 5%, the required reserve/deposit ratio is 4%, then depošits in Macroland equal and the money supply equals O 40,000,000; 42,000,000 20,000,000; 21,000,000

In Macroland there is €2,000,000 in currency. The public holds half of the currency and banks hold the rest. as reserves. If banks' desired reserve/deposit ratio is 5%, the required reserve/deposit ratio is 4%, then depošits in Macroland equal and the money supply equals O 40,000,000; 42,000,000 20,000,000; 21,000,000

Brief Principles of Macroeconomics (MindTap Course List)

8th Edition

ISBN:9781337091985

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter11: The Monetary System

Section: Chapter Questions

Problem 5PA

See similar textbooks

Similar questions

Explain how to use an open market operation to expand the money supply.
§Suppose that the T-account for First National Bank is as follows: Assets Liabilities Reserves: 90.000-TL Deposits: 500.000-TL Loans: 410.000-TL § §If the Central Bank requires banks to hold 10% of deposits as reserves, how much in excess reserves does First National Bank now hold? MM=1/rr MM=1/(10/100) MM=10 40000*10=400000TL §Assume that all other banks hold only the required amount of reserves. If First National decides to reduce its reserves to only the required amount, by how much would the economy’s money supply increases?
Banks in New Transylvania have a desired reserve ratio of 10 percent of deposits and noexcess reserves. The currency drain ratio is 50 percent of deposits. Now suppose that thecentral bank increases the monetary base by $900 billion.i. How much do the banks lend in the first round of the money creation process?ii. How much of the initial amount loaned flows back to the banking system as newdeposits?iii. How much of the initial amount loaned does not return to the banks but is heldas currency?iv. Why does a second round of lending occur?
Banks in New Transylvania have a desired reserve ratio of 10 percent of deposits and noexcess reserves. The currency drain ratio is 50 percent of deposits. Now suppose that thecentral bank increases the monetary base by $900 billion.i. How much do the banks lend in the first round of the money creation process?ii. How much of the initial amount loaned flows back to the banking system as newdeposits?iii. How much of the initial amount loaned does not return to the banks but is heldas currency?iv. Why does a second round of lending occur?v. Calculate money multiplier in this example?vi. What is the final increase in the quantity of money?
anks in New Transylvania have a desired reserve ratio of 10 percent of deposits and noexcess reserves. The currency drain ratio is 50 percent of deposits. Now suppose that thecentral bank increases the monetary base by $900 billion.i. How much do the banks lend in the first round of the money creation process?ii. How much of the initial amount loaned flows back to the banking system as newdeposits?iii. How much of the initial amount loaned does not return to the banks but is heldas currency?iv. Why does a second round of lending occur?v. Calculate money multiplier in this example?vi. What is the final increase in the quantity of money?