QUESTION 6Which of the following is true?O All else equal, an increase in the reserve-deposit ratio will cause an increase in the money supply.Consumption is a stock variable.None of the other answers is correct.

supply of money will increases when the reserve will be less so here we can choose the correct…

Answered: QUESTION 6 Which of the following is…

Macroeconomics: Private and Public Choice (MindTap Course List)

16th Edition

ISBN:9781305506756

Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

Publisher:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

Chapter14: Modern Macroeconomics And Monetary Policy

Section: Chapter Questions

Problem 1CQ

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Suppose the banking system has a vault cash of GHc1,000 deposit at the central bank of GHc2,000 and demand deposits of Ghc10,000. a. if the reserve requirement is 20 percent, what is the maximum potential increase in the money supply given the banks reserve position? b. If the central bank now purchases GHc500 worth of government bonds from private bond dealers, what are excess reserves of the banking system? ( Assume that the bond dealers deposit the Ghc500 in demand deposit). How much can the banking system increase the money supply given the new reserve position?
Please choose the correct answers: If everyone in the economy decides to close their bank accounts and hold all their money onhand, this will cause overall M1 to rise / fall / remain unchanged / change ambiguously andoverall M2 to rise / fall / remain unchanged / change ambiguously. Money functions as a medium of exchange because it is readily exchangeable for other goods.A) TrueB) FalseMoney supply rises when banks decide to hold excess reserves over and above what they arelegally required to hold against deposits.A) TrueB) False
Suppose that in December the public wants to hold more currency to buy gifts andmake donations to local charities and so withdraws cash from their bank accounts.(i) Draw a diagram illustrating how the shift from deposits into currency affectsthe equilibrium in the market for reserves.(ii) What happens to the overnight interest rate? Your answer should include abrief explanation (i.e., a few sentences).
Using the supply and demand analysis of the marketfor reserves, indicate how the following situationswould affect central bank interest rates and economiesin general.a. The central bank eliminates interest paid on excessreserve.b. The central bank introduces special interest rates(lower than usual) for commercial banks and setsspecial auction.c. The central bank conducts an open market sale ofcertain securities.d. The central bank sets negative interest rates on bankdeposits.e. The central bank increases reserve requirements.
Consider a bank policy to hold reserves equal to 15% of bank deposits. The bank currently has $25 million in deposits and holds $1 million of excess reserves. If the Fed decides to conduct contractionary monetary policy by selling $250 million in UST bonds, how much will the money supply change by if the required reserve ration is 15%? Please express you answer in millions of dollars.
Let’s assume that the nominal Gross Domestic Product, GDP, of a hypothetical country is $36,000 and that the velocity of money of this country is 6. This implies that the money supply, in this country, is:
Assume the Federal Reserve has a federal funds rate target (ffr*) at 1.5%. If there is anunexpected decrease in the demand for reserves and the Federal Reserve wants to maintainthe target rate, how does it affect the money supply? Explain with the aid of a supply anddemand for reserves diagram.
Let the reserve requirement be 15 percent for deposits. Assume there are not excess reserves. If the currency demand equals 40 percent of deposits and total reserves equal $60 billion, then an open markey sale of $1.5 billion in government bonds should Reduce the money supply from $160 billion to $156 billion Increase the money supply from $400 billiion to $410 billion Reducce the money supply from $400 billion to $390 bilion Reduce the money supply from $560 billion to $546 billion
Please choose the correct answer: If everyone in the economy decides to close their bank accounts and hold all their money onhand, this will cause overall M1 to rise / fall / remain unchanged / change ambiguously andoverall M2 to rise / fall / remain unchanged / change ambiguously
Explain whether each of the following eventsincreases or decreases the money supply.a. The Fed buys bonds in open-market operations.b. The Fed reduces the reserve requirement.c. The Fed increases the interest rate it pays onreserves.d. Citibank repays a loan it had previously takenfrom the Fed.e. After a rash of pickpocketing, people decide tohold less currency.f. Fearful of bank runs, bankers decide to hold moreexcess reserves.g. The FOMC increases its target for the federalfunds rate.
Given the following ratios, show how money multiplies and the total increase in money supply if the monetary base (MH) increases by $520. Your answer should include the changes in currency in circulation (C), deposits (D), required reserves (R) and loans disbursed by commercial bank (L).b=C/D=0.25X=R/D=0.12

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QUESTION 6 Which of the following is true? All else equal, an increase in the reserve-deposit ratio will cause an increase in the money supply. Consumption is a stock variable. None of the other answers is correct.