PRINCIPLES OF MACROECONOMICS(LOOSELEAF)
7th Edition
ISBN: 9781260110920
Author: Frank
Publisher: MCG
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Question
Chapter 10, Problem 3P
(a)
To determine
Determine the deposits and money supply in the economy.
(b)
To determine
Determine the currency held by the public and bank reserves.
(c)
To determine
Determine the desired reserve deposit ratio.
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The Monetary Policy of Tazi is controlled by the country's central bank known as the Bank of Tazi. The local unit of currency is the Tazian dollar. Aggregate banking statistics show that collectively the banks of Tazi hold $280 million of required reserves, $70 million of excess reserves, have issued $7,000 million of deposits, and hold $560 million of Tazian Treasury bonds. Tazians prefer to use only demand deposits and so all money is on deposit at the bank.
Refer to Scenario 129-12. Assuming the only other thing Tazian banks have on their balance sheets is loans, what is the value of existing loans made by Tazian banks?
Question 26 options:
$6,090 million
$6,650 million
$6,730 million
$5,890 million
Suppose the monetary base is $100. If the currency-deposit ratio is 0.20 and the reserve-deposit ratio is 0.10, calculate the money multiplier and total money supply.
In Macroland, currency held by the public is 2,000 econs, bank reserves are 300 econs, and therequired reserve/deposit ratio is 10 percent. If the Central Bank raises the required reserve/deposit ratiomaking the new desired ratio equal to 15 percent, then the money supply in Macroland will _____ to_____ econs, assuming that the public does not wish to change the amount of currency it holds.
Chapter 10 Solutions
PRINCIPLES OF MACROECONOMICS(LOOSELEAF)
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Similar questions
- Assume the required reserve ratio is 10 percent. If the Federal Reserve buys $10 million in government securities from the public, then the money supply will immediately: Multiple Choice increase by $10 million, and the maximum money-lending potential of the commercial banking system will increase by $100 million. increase by $10 million, but the maximum money-lending potential of the commercial banking system will decrease by $10 million. decrease by $10 million, and the money-lending potential of the commercial banking system will decrease by $100 million increase by $10 million, and the maximum money-lending potential of the commercial banking system will increase by $10 million.arrow_forwardThe M1 money supply is composed of all coins and paper money held by the general public and the banks bank deposits of households and business firms bank deposits and mutual funds checkable deposits and currency in circulationarrow_forwardSince October 2008, the Federal Reserve has started paying interest on excess reserves held by banks. Under these circumstances, if the Fed buys a Treasury security worth $200 million from a bank, which of the following can be expected regarding the change in the money supply? Assume that the required reserve ratio is 10% and that all currency is deposited into the banking system. -The money supply will increase by less than $2 billion. -The money supply will not change at all. -The money supply will increase by $2 billion. -The money supply will increase by more than $2 billion.arrow_forward
- Suppose the Fed buys $2000000 in government securities from someone who is a depositor at the First National Bank of El Reno. Lets assume the person deposits this money in this bank. Further assume that the current reserve requirement ratio is 20%. Please indicate below what will initially happen to this bank's balance sheet as a result of this transaction. Change in Reserves Change in loans Change in deposits Please indicate what will eventually happen to the nation's banking system as a result of this transaction. Change in reserves Change in loans Change in Depositsarrow_forwardThe initial condition of the banking system is as follows: $500 billion in reserve, $4,500 billion in loans and investments, and 5,000 billion in deposits. The required reserve is 10%. The Fed buys $100 billion government securities using open market operation, and lowers the reserve requirement to 5%. The banking system converts 85% excess reserves to loans, but borrowers return only 65% of these funds to the banking system as deposits. What is the maximum amount of loans in the banking system as a result of such Fed operation?arrow_forwardSuppose that currency in circulation is $600 billion, the amount of chequable deposits is $900 billion, excess reserves are $15 billion, and the desired reserve ratio is 10% Calculate the money supply, the currency deposit ratio, the excess reserve ratio, and the money multiplier. Suppose the central bank conducts an unusually large open market purchase of bonds held by banks of $1400 billion due to a sharp contraction in the economy. Assuming the ratios you calculated in part (a) are the same, what do you predict will be the effect on the money supply? Calculate new the money supply.arrow_forward
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