![MACROECONOMICS (LOOSELEAF)-PACKAGE](https://www.bartleby.com/isbn_cover_images/9781337492317/9781337492317_largeCoverImage.gif)
a)
To Explain: The effect on
b)
To Explain: The effect on GDP, when there is an increase in bank reserves by
c)
To Explain: The effect on GDP, when there is an increase in bank reserves by
d)
To Explain: The effect on GDP, when there is an increase in bank reserves by
![Check Mark](/static/check-mark.png)
Want to see the full answer?
Check out a sample textbook solution![Blurred answer](/static/blurred-answer.jpg)
Chapter 13 Solutions
MACROECONOMICS (LOOSELEAF)-PACKAGE
- If 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 you win on a scratch-off lottery ticket and you decide to put all of your $3,500 winnings in the bank. The reserve requirement is 5%. What is the maximum possible increase in the money supply as a result of your bank deposit? maximum increase: $ Which events could cause the increase in the money supply to be less than its potential? Banks choose to loan out all excess reserves. Some loan recipients choose to hold some cash instead of depositing all of it in banks. Banks decide to keep some excess reserves on hand. All money loaned out is deposited back into the banking system.arrow_forwardThe following graph represents the money market for some hypothetical economy. This economy is similar to the United States in the sense that it has a central bank called the Fed, but a major difference is that this economy is closed (and therefore does not have any interaction with other world economies). The money market is currently in equilibrium at an interest rate of 5% and a quantity of money equal to $0.4 trillion, designated on the graph by the grey star symbol. INTEREST RATE (Percent) 7.0 6.5 6.0 5.5 PRICE LEVEL 4.5 4.0 3.5 3.0 0 Money Demand 0.1 Money Supply 0.3 0.4 0.5 0.6 MONEY (Trillions of dollars) 0.2 0.7 0.8 New MS Curve Suppose the Fed announces that it is lowering its target interest rate by 25 basis points, or 0.25 percentage points. To do this, the Fed will use open- market operations to the money by the public. OUTPUT New Equilibrium Use the green line (triangle symbol) on the previous graph to illustrate the effects of this policy by placing the new money supply…arrow_forward
- The following graph represents the money market for some hypothetical economy. This economy is similar to the United States in the sense that it has a central bank called the Fed, but a major difference is that this economy is closed (and therefore does not have any interaction with other world economies). The money market is currently in equilibrium at an interest rate of 5% and a quantity of money equal to $0.4 trillion, designated on the graph by the grey star symbol. INTEREST RATE (Percent) 7.0 4.5 35 20 PRICE LEVEL Many Demand 0.1 Money Supply MONEY (Trio of dollar) 0.7 New MS Curve Suppose the Fed announces that it is raising its target interest rate by 25 basis points, or 0.25 percentage points. To do this, the Fed will use open- market operations to ✓money by the public. New Equrum Use the green line (triangle symbol) on the previous graph to illustrate the effects of this policy by placing the new money supply curve (MS) in the correct location. Place the black point (plus…arrow_forwardThe following graph represents the money market for some hypothetical economy. This economy is similar to the United States in the sense that it has a central bank called the Fed, but a major difference is that this economy is closed (and therefore does not have any interaction with other world economies). The money market is currently in equilibrium at an interest rate of 6% and a quantity of money equal to $0.4 trillion, designated on the graph by the grey star symbol. INTEREST RATE (Percent) 8.0 7.5 7.0 6.5 6.0 5.5 5.0 4.5 4.0 0 Money Demand 0.1 Money Supply 0.2 0.3 0.4 0.5 MONEY (Trillions of dollars) 0.6 0.7 + 0.8 New MS Curve New Equilibrium (?)arrow_forwardM1 is the narrowest definition of the money supply. It includes currency in circulation, checking account deposits and travelers checks. The statements refer to factors that can affect the money multiplier. Label each statement as true or false. The total change in the M1 brought about by the money multiplier is affected by the amount of deposits made by households and businesses.Banks must lend out all their excess reserves in order to change the M1 money supply.The Federal Reserve (Fed) has very little effect on the money multiplier.The state of the economy can affect the amount of excess reserves that banks keep on reserve, thereby affecting the impact of the money multiplier.arrow_forward
- The following graph represents the money market for some hypothetical economy. This economy is similar to the United States in the sense that it has a central bank called the Fed, but a major difference is that this economy is closed (and therefore does not have any interaction with other world economies). The money market is currently in equilibrium at an interest rate of 6% and a quantity of money equal to $0.4 trillion, designated on the graph by the grey star symbol. INTEREST RATE (Percent) 15 7.0 8.5 2 5.0 45 New MS Curve Money Demand 4.0 9.1 0.2 Money Supply 0.7 0.8 03 04 0.5 MONEY (Trilions of dollars) New Equilibrium Suppose the Fed announces that it is lowering its target interest rate by 75 basis points, or 0.75 percentage points. To do this, the Fed will use open- market operations to money by ▼the public. the Use the green line (triangle symbol) on the previous graph to illustrate the effects of this policy by placing the new money supply curve (MS) in the correct location.…arrow_forwardThe following graph represents the money market in a hypothetical economy. As in the United States, this economy has a central bank called the Fed, but unlike in the United States, the economy is closed (that is, the economy does not interact with other economies in the world). The money market is currently in equilibrium at an interest rate of 3.5% and a quantity of money equal to $0.4 trillion, as indicated by the grey star.arrow_forwardThe following graph represents the money market for some hypothetical economy. This economy is similar to the United States in the sense that it has a central bank called the Fed, but a major difference is that this economy is closed (and therefore does not have any interaction with other world economies). The money market is currently in equilibrium at an interest rate of 3% and a quantity of money equal to $0.4 trillion, designated on the graph by the grey star symbol. INTEREST RATE (Percent) 5.0 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0 Money Demand 0.1 Money Supply 0.5 0.2 0.3 0.4 MONEY (Trillions of dollars) 0.6 0.7 0.8 New MS Curve New Equilibrium ? Suppose the Fed announces that it is raising its target interest rate by 75 basis points, or 0.75 percentage points. To do this, the Fed will use open- market operations to the money by the public. Use the green line (triangle symbol) on the previous graph to illustrate the effects of this policy by placing the new money supply curve (MS) in the…arrow_forward
- 8) If the reserve requirement on banks is 10 percent, then the money multiplier for the economy is: A) 15 B) 20 C) 1 D) 10 9) Assume that individuals hold no cash and banks hold no excess reserves. The Federal Reserve buys Treasury securities from a bank, and the reserve requirement on banks is 10 percent. As a result of the Federal Reserve's action, the money supply in the economy increases by $5,000. Therefore, the Federal Reserve must have bought _____ of securities from the bank. A) $1000 B) $10 C) $500 D) $100 10) Which of the following institutions insures the deposits in commercial banks, savings banks, and savings and loans institutions? A) National Credit Union Insurance Company B) Federal Reserve C) US Treasury D) Federal Deposit Insurance Corporation THANK YOU SO MUCH FOR HELPING ME!!!!!!arrow_forwardChallenge Problem. The chapter mentions that an open market operation by the Fed can increase or decrease the quantity of deposits in banks and therefore the money supply. The change in the money supply from a Fed open market operation is given by the following equation: Change in money supply = Change in reserves x1/ (RR+ ER) where RR = the percentage of deposits that banks are required to keep as reserves ER = the percentage of deposits that banks voluntarily hold as excess reserves 1/ (RR+ ER) = the "money multiplier" Suppose the Fed decides to sell $16 billion in Treasury bonds. Assume that the reserve requirement is 10 percent, banks hold 3 percent in excess reserves, and the public holds no cash. This action by the Fed causes the money supply to by S billion. (Round your response to two decimal places.)arrow_forwardAssume that banks do not hold excess reserves and that households do not hold currency, so the only form of money is demand deposits. To simplify the analysis, suppose the banking system has total reserves of $300. Determine the money multiplier and the money supply for each reserve requirement listed in the following table. A higher reserve requirement is associated with a __larger, smaller__money supply.Suppose the Federal Reserve wants to increase the money supply by $200. Again, you can assume that banks do not hold excess reserves and that households do not hold currency. If the reserve requirement is 10%, the Fed will use open-market operations to ____buy / sell_$___________worth of U.S. government bonds. Now, suppose that, rather than immediately lending out all excess reserves, banks begin holding some excess reserves due to uncertain economic conditions. Specifically, banks increase the percentage of deposits held as reserves from 10% to 25%. This increase in the reserve…arrow_forward
- Principles of Economics (12th Edition)EconomicsISBN:9780134078779Author:Karl E. Case, Ray C. Fair, Sharon E. OsterPublisher:PEARSONEngineering Economy (17th Edition)EconomicsISBN:9780134870069Author:William G. Sullivan, Elin M. Wicks, C. Patrick KoellingPublisher:PEARSON
- Principles of Economics (MindTap Course List)EconomicsISBN:9781305585126Author:N. Gregory MankiwPublisher:Cengage LearningManagerial Economics: A Problem Solving ApproachEconomicsISBN:9781337106665Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike ShorPublisher:Cengage LearningManagerial Economics & Business Strategy (Mcgraw-...EconomicsISBN:9781259290619Author:Michael Baye, Jeff PrincePublisher:McGraw-Hill Education
![Text book image](https://compass-isbn-assets.s3.amazonaws.com/isbn_cover_images/9780190931919/9780190931919_smallCoverImage.gif)
![Text book image](https://www.bartleby.com/isbn_cover_images/9780134078779/9780134078779_smallCoverImage.gif)
![Text book image](https://www.bartleby.com/isbn_cover_images/9780134870069/9780134870069_smallCoverImage.gif)
![Text book image](https://www.bartleby.com/isbn_cover_images/9781305585126/9781305585126_smallCoverImage.gif)
![Text book image](https://www.bartleby.com/isbn_cover_images/9781337106665/9781337106665_smallCoverImage.gif)
![Text book image](https://www.bartleby.com/isbn_cover_images/9781259290619/9781259290619_smallCoverImage.gif)