Suppose that the required reserve ratio is 8%, currency in circulation is $600 billion, the amount of checkable deposits is $890 billion, and excess reserves are $15 billion. The money supply is $ 1490 billion. 600 billion + 890 billion = 1490 billion The currency deposit ratio is 0.67. 600/890 = 0.67 The excess reserve ratio is 0.16 or 0.02 (if we are rounding). 15/890 = 0.169 The money multiplier is12.5 1/%8 = 1/0.08 =12.5 Suppose the central bank conducts an unusually large open market purchase of bonds held by banks of $1,300 billion due to a sharp contraction in the economy. Assuming the ratios you calculated in the previous steps are the same, the money supply should (1)_ to $ billion. (1) Increase decrease
Suppose that the required reserve ratio is 8%, currency in circulation is $600 billion, the amount of checkable deposits is $890 billion, and excess reserves are $15 billion. The money supply is $ 1490 billion. 600 billion + 890 billion = 1490 billion The currency deposit ratio is 0.67. 600/890 = 0.67 The excess reserve ratio is 0.16 or 0.02 (if we are rounding). 15/890 = 0.169 The money multiplier is12.5 1/%8 = 1/0.08 =12.5 Suppose the central bank conducts an unusually large open market purchase of bonds held by banks of $1,300 billion due to a sharp contraction in the economy. Assuming the ratios you calculated in the previous steps are the same, the money supply should (1)_ to $ billion. (1) Increase decrease
Chapter15: Money Creation
Section: Chapter Questions
Problem 15SQ
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Transcribed Image Text:Suppose that the required reserve ratio is 8%, currency in circulation is $600 billion, the amount of checkable
deposits is $890 billion, and excess reserves are $15 billion.
The money supply is $ 1490 billion.
600 billion + 890 billion = 1490 billion
The currency deposit ratio is 0.67.
600/890 = 0.67
The excess reserve ratio is 0.16 or 0.02 (if we are rounding).
15/890 = 0.169
The money multiplier is12.5
1/%8 = 1/0.08 =12.5
Suppose the central bank conducts an unusually large open market purchase of bonds held by banks of $1,300
billion due to a sharp contraction in the economy.
Assuming the ratios you calculated in the previous steps are the same, the money supply should (1).
to $
billion.
(1) Increase
decrease
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