Question 2 on Topic 5  Most people in the country of Classica tend to keep $3 out of every $100 of their cash holdings in their wallets. The central bank has instructed the commercial banks to also hold 4% of all bank deposits as reserves. Calculate the extended money multiplier                       Suppose that in 2018 customers deposit $4,000 into their bank accounts. Based on the extended money multiplier calculated in part (i), calculate the total amount which the money supply in the banking system will eventually increase to. Show all steps involved in the calculation.                               In which situation can the simple money multiplier value equal that of the extended money multiplier value? Justify your answer with a numerical example.

Q: Assume that a bank receives a deposit of $1,000 in cash, puts aside $200 as required reserves, and…

A: reserve ratio refers that the ratio which is determined by the central bank for the domestic bank…

Q: Assume that the banking system has total reserves of Rs.200 billion. Assume also that required…

A: Total reserves banking system has= 200 billion Required reserve ratio= 12.5%

Q: Practice with money multipliers. Think of the “money supply” (MS) as equal to either M1 or M2. a.…

A: Reserve requirement refers to the minimum percentage of reserves that banks are required to hold…

Q: Suppose the banking system currently has $300 billion in reserves, the reserve requirement is 5%,…

A: We will answer the first question since the exact one was not specified. Please submit a new…

Q: Assume that banks do not hold excess reserves and that households do not hold currency, so the only…

A: Formula to calculate money multiplier:-                                                    k=1/rr…

Q: Consider an economy where the monetary base is k24 000, while the total deposits are k56 000. Bank…

A: Given information Monetary base=K24000 Total deposit=K56000 Bank can loan=K50400 Excess reserves=30%…

Q: Most people in the country of Classica tend to keep $3 out of every $100 of their cash holdings in…

A: Reserves in deposits = 4% Total Wallet reserves = (3/100)*100 = 3% If total deposits is equal to 100…

Q: Assume that Lucky Bank is required to hold a 10% deposits as reserves, and there is a $3000…

A: Under a fractional-reserve banking system, a money multiplier is one of several strongly linked…

Q: The central bank in Malaysia has bought $100 in bonds from a bank. The reserve requirement is 25%.…

A: The money supply is the total amount of money that circulates in the economy. The money supply is…

Q: Suppose the total reserves (RR+ER) in the banking sector is $5 trillion. The central bank has set…

A: Banks have to keep aside some proportion of total deposit as reserve with RBI or with themself for…

Q: Assume that banks do not hold excess reserves and that households do not hold currency, so the only…

A: A.   Total Reserve = $400  Money supply = Total reserve × multiplier  When the reserve requirement =…

Q: The U.S. money supply (M1) at the beginning of 2015 was $2,683.3 billion broken down as follows:…

A: We are going to discuss the checkable money deposits as a part of M1 money to answer this question.

Q: Calculate the extended money multiplier      Suppose that in 2018 customers deposit $4,000 into…

A: The money multiplier can be calculated using the formula,  Money Multiplier=1RRR where the RRR is…

Q: Assume that banks do not hold excess reserves and that households do not hold currency, so the only…

A:

Q: When the Central Bank increases its discount rate, A. Monetary base increases B. monetary base…

A: money supply is the total stock of money held by public. money supply and monetary base have…

Q: Assume that the money multiplier m deposit ratio, e is the excess reserve ratio and r is the…

A: The process by which an increase in the monetary base would lead to an increase in the money supply…

Q: a) Most people in the country of Classica tend to keep $3 out of every $100 of their cash holdings…

A: a.i) The people keep $3 out of $100 in the economy with them in their purse. This means that people…

Q: Assume that banks do not hold excess reserves and that households do not hold currency, so the only…

A: Money Multiplier is the amount of money that the commercial banks generate with a dollar of…

Q: The money multiplier is described in Section 4-4. Assume the following: i. The public holds no…

A: “Since you have posted a question with multiple sub-parts, we will solve first three sub-parts for…

Q: 19)Consider the following scenario. The currency deposit ratio is 0.5, the required reserve ratio is…

A: Money multiplier refers to the number that a certain increase in the monetary base gets multiplied…

Q: During COVID 19 pandemic in 2020, many people decided to hold less cash due to the fear of infection…

A: When due to COVID 19 pandemic in 2020, if people decide to hold less cash due to the fear of…

Q: Assume that the Habib Bank of Pakistan has total reserves of Rs. 50 Million. Assume also that…

A: Given: The total reserves of Habib Bank of Pakistan are = Rs 50 Million The required reserves are =…

Q: If deposits in the banking system are $540, while the reserve ratio is 0.2 and the currency to…

A: High powered money or the monetary base refers to the total amount of currency issued in an economy…

Q: Suppose that rather than immediately lending out all excess reserves, banks begin holding some…

A: The reserve ratio has increased to 20% while the multiplier falls to 5. This would mean that the…

Q: Now, suppose that, rather than immediately lending out all excess reserves, banks begin holding some…

A: We will use the relationship between Money multiplier and required reserve ratio to answer this…

Q: Assume that banks do not hold excess reserves and that households do not hold currency, so the only…

A: Money is anything that has basically three functions such as the medium of exchange store of value…

Q: Assume that the banking system has total reserves of Rs.250 billion. Assume also that required…

A: The money supply refers to the money that is held by the people in the country at a particular time.…

Q: Assume that banks do not hold excess reserves and that households do not hold currency, so the only…

A: To get the simple money multiplier:  When Reserve requirement = 5%, then multiplier = 1/r  So money…

Q: If the Fed wants to decrease the money supply using open-market operations, it should…

A: Open Market Operations is a monetary policy of buying and selling government bonds in the open…

Q: The central bank in a country released the following statistics. Total deposits in banks amounted to…

A: Since you have asked 5 sub parts so I am providing you the answer of few questions. Please ask…

Q: 8. The reserve requirement, open market operations, and the money supply Assume that banks do not…

A: (Since you have asked multiple questions, we will solve the first question for you. If you want any…

Q: If the money multiplier is 3 and the Fed wants to increase the money supply by $900,000, it could…

A: Given,  Money Multiplier = 3 Increase in money supply = $900,000 When the fed wants to increase the…

Q: Assume that banks do not hold excess reserves and that households do not hold currency, so the only…

A: For answering this one need to know about  Reserve Deposite Ratio. The ‘reserve-deposit ratio’ also…

Q: Challenge Problem. Assume that the public in the small country of Sylvania does not hold any cash.…

A: Reserves are the part of bank stores that banks hold yet don't advance out. A required save ratio is…

Q: Suppose the Federal Reserve increases the amount of reserves by $150 million and the total money…

A: (a) There are an increase in the amount of reserves by $150 million and the total money supply…

Q: Assume that banks do not hold excess reserves and that households do not hold currency, so the only…

A: A)  Reserve Requirement  Multiplier  Money Supply 25 1/0.25 = 4 4*500 = 2000 10 1/0.10 = 10…

Q: If the central bank decreases the amount of reserves banks are required to hold from 20% to 10%,…

A: Reserve requirement is the minimum amount of cash the banks are supposed to have as reserves to make…

Q: A.The Fed cannot control the amount of money that households choose to hold as currency.   B.The Fed…

A: Reserve requirement: The reserve requirement is the amount that banks have to maintain each night.…

Q: During recessions, banks typically choose to hold more excess reserves relative to their deposits.…

A: Recession:The period of economic decline in which economic activities fall and unemployment…

Q: Suppose the money supply (as measured by checkable deposits) is currently $300 billion. The required…

A: If the central bank wishes to increase the money supply, the central bank either buys the treasury…

Q: If the central bank decreases the amount of reserves banks are required to hold from 20% to 10%,…

A: The central bank controls the money supply by using monetary policy tools which include quantitative…

Q: Analyze the following situations in the light of one of the topics of “Big Ideas simply explained”…

A: In economics, money (Ms) supply and reserve ratio (rr) requirement are inversely related. The term…

Q: Most people in the country of Classica tend to keep $3 out of every $100 of their cash holdings in…

A: The extended money multiplier (EMM)  conveys the amplified impact on money stock from an initial…

Q: Suppose that third fidelity bank has 50,000 in checkable deposits and 32,500 on outstanding loans.…

A: For the commercial banks, deposits are the liabilities as the depositors owe the money from the bank…

Q: open mar operations, and the moneysupply Assume that banks do not hold excess reserves and that…

A: Given,   Total reserve = $400  Reserve requirement = 20%

Q: Assume that banks do not hold excess reserves and that households do not hold currency, so the only…

A: It is given that total reserves = $100.

Q: Use the information below to answer the following questions: C=currency = 1000, Deposits=D = 800,…

A: Here, we calculate the given as follow;