Economics:
10th Edition
ISBN: 9781285859460
Author: BOYES, William
Publisher: Cengage Learning
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Question
Chapter 12, Problem 13E
To determine
(a)
To compute:
The deposit expansion multiplier if there is no cash drain.
To determine
(b)
To compute:
The value of deposit expansion multiplier if there is a cash drain of
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Q)Assume that some people who receive bank loans do not deposit the full amount of the loan into a bank. This will cause the money multiplier to be the bank deposits multiplier.
A) smaller than
B) greater than
C) neither greater than or smaller than
D) the same as
Suppose that the reserve requirement for checking deposits is 16 percent and that banks do not hold any excess reserves.
If the Fed sells $2 million of government bonds, the economy's reserves (either increase or decrease) by
$______million, and the money supply will (increase or decrease) by $______million.
Now suppose the Fed lowers the reserve requirement to 8 percent, but banks choose to hold another 8 percent of deposits as excess reserves.
True or False: The money multiplier will increase.
False
True or False: As a result, the overall change in the money supply will increase.
True
Give typing answer with explanation and conclusion
If the monetary base increases by $1 million and the quantity of money increases by $2.5 million, then the money multiplier is _
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Similar questions
- Calculate the value of legal reserve ratio if Multiplier is 11.1arrow_forwardIf a $100 billion increase in investment spending creates $100 billion of new income in the first round of the multiplier process and $90 billion of new income in the second round, the multiplier in the economy is ( ). Assume that you find a $20 bill under your mattress and deposit it into a chequing account. If the reserve ratio is 10% and banks lend all of their excess reserves. Then the maximum new money creation is ( ).arrow_forwardSuppose an increase in the monetary base of $200,000 increases the quantity of money by $800,000. Calculate the money multiplier. The money multiplier is _____ Thanksarrow_forward
- Calculate the value of multiplier if the value of legal reserve ratio is given to be as 3.6%arrow_forwardUse simplified money multiplier formula to answer this question. Assume banks do not keep excess reserves. Suppose households $100 bln in cash and $800 bln in bank deposits. Money multiplier in this economy is equal 10.What happens with money supply when households use $10 bln to fund their digital wallets with cash to set up accounts on such platforms as Apple wallet, Google wallet, Samsung wallet, Venmo, and others.arrow_forwardR2 Q1: Discuss monetary vs interest rate targeting? Q2: What's the money multiplier? Explain this concept verbally first and then using an example with numbers.arrow_forward
- Suppose that rather than immediately lending out all excess reserves, banks begin holding some excess reserves in response to uncertain economic conditions. Specifically, banks increase the percentage of deposits held as reserves from 10% to 20%. This increase in the reserve ratio causes the multiplier to fall from 10 to 5. Under these conditions, How Many Dollars Worth of government bonds would the Fed would need to Buy or Sell in order to increase the money supply by $100?arrow_forwardIn the Economy the multiplier is given to be as 14 Calculate the value of legal reserve ratioarrow_forwardSuppose the banks in an economy have a reserve-deposit ratio of 10 percent and the currencydeposit ratio is 20 percent.a. If the Central Bank increases the monetary base by $400 through open market operations, what will be the increase in the money supply?b. If the Central Bank increases the discount rate and firms react by increasing the reservedeposit ratio to 15 percent, what is the change in the multiplier? Will this change increase or decrease the money supply?arrow_forward
- If the money multiplier is 5 and the Fed sells $1 million worth of bonds, what happens to the money supply? Group of answer choices It decreases by $10 million. It increases by $10 million. It decreases by $5 million. It increases by $5 million.arrow_forwardConsider an economy for which the current GDP is $800 billion, “the” multiplier is 3, the income multiplier with respect to the money supply is 4, the money multiplier is 5, the marginal tax rate is 20%, the real interest rate is 3%, the current budget deficit is $30 billion, the long‐run real rate of growth is 2%, the current money supply is $200 billion, the rate of money supply growth is 10%, and financial innovations are decreasing money demand by 1% per year. Marks are given for your explanations, not the final answer. What should be the long‐run rate of inflation? What should be the price of a T‐bill due to mature in six months at its face value of $1,000?arrow_forwardSuppose that the reserve requirement is 6.7%. If the Fed buys $5 million in bonds from the First national Bank, what is the total deposit creation in the banking system using the simple deposit multiplier? (Please answer ASAP. I will rate positively)arrow_forward
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