EBK MACROECONOMICS
10th Edition
ISBN: 9780134896571
Author: CROUSHORE
Publisher: VST
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Question
Chapter 14, Problem 1NP
To determine
To describe:
The final value of the money supply, based on the given information and conditions.
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Students have asked these similar questions
A bank has the following deposits and assets:
Checkable deposits held by individuals and businesses,
$380
Savings deposits held by individuals and businesses,
$1,280
Small time deposits,
$575
Loans to businesses,
$1,809
Outstanding credit card balances,
$300
Government securities,
$125
Currency in the bank's vault,
$1
Reserve account at the Fed,
$8
Calculate the bank's total deposits, deposits that are part of M1, and deposits that are part of M2.
The bank's total deposits are
$
Deposits that are part of M1 are
$
Deposits that are part of M2 are
$
The Bank of Canada sets the reserve requirement, which banks must meet through deposits at the Bank of Canada and cash held at the bank. What
do these requirements achieve? Check all that apply.
They help to facilitate transfers of funds between banks when a customer from one bank writes a cheque to a customer of another.
They help to control the money supply.
They help to prevent bank runs by reassuring the public that banks will not make too many loans and run out of cash.
They mean that a bank must have one dollar of deposits for every dollar it lends.
If a bank depositor withdraws $1,000 of currency from an account, what happens to reserves, checkable deposits, and the monetary base
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Similar questions
- Currently, the Fed does not have complete control of the money supply because the Congress and the Treasury can also make changes to the money supply. government bonds may not be available for purchase when the Fed wants to perform OMO. the Fed does not know where all the U.S. currency is located. the amount of money in the real economy depends on the behavior of depositors and bankers. All of the above are correct.arrow_forwardSuppose you found Rs. 2000 that was stored under your grandmother's mattress and you decided to deposit this money in a Bank of India. If the desired reserve ratio were 20 percent and all excess reserves were lent out. a) Calculate the money supply created by this deposition in the economy?b) Following a new deposit of Rs. 2000, what is the reserve requirement of the commercial bank?c) Suppose all the banks in the banking system collectively have Rs.20 million in cash reserves and have a desired reserve ratio of 20 percent, the maximum amount of demand deposits the banking system can support is?arrow_forward7. a) only the central bank can create money b) commercial banks can create credit c) all UK currency is backed by central bank holdings of gold 8. An increase in the money supply can lead to a) a rise in interest rates b) a fall in the liquidity ratio c) a fall in interest rates 9. The neutrality of money refers to the idea that a) a change in money supply has no impact on output over any time period b) a change in money supply has no short run impact on output c) the real quantity of money is constant in the long termarrow_forward
- Vault cash is equal to $2 million, deposits by depository institutions at the central bank are $3 million, the monetary base is $15 million, and bank deposits are $35 million. Currency held by the nonbank public is $ million Iarrow_forwardYour friend Sarah borrows money from her bank to buy a car. Explain to her the transactions in which the bank sets up the loan, and why the loan involves an increase in the money supply.arrow_forwardOpen market operations mean that the Fed is buying\selling government securities. This means that if the Fed wants to increase the money supply, it should ⒸBuy bonds. Sell bonds. Decrease taxes. Decrease government spending QUESTION 7 Consider the market for automobiles. Suppose consumer income decreases dramatically while simultaneously there is global shutdown that increases the cost of producing automobiles. In this situation we would expect, Price of automobiles to fall and the quantity sold to increase. O Price of automobiles to either increase or decrease and the quantity sold to fall. Price of automobiles to fall and the quantity sold to either increase or decrease. None of the above QUESTION 8 Which of the following is an example of an automatic stabilizer? O Increases in the interest rate. Unemployment insurance and welfare. O Automatically varying reserve requirements that differ by Federal Reserve Bank Region B and C.arrow_forward
- Monetary policy can only be effectively designed and implemented in economies that have a fractional reserve banking system. (a) Explain what is meant by a fractional reserve banking system; (b) Using a fractional reserve requirement of 1/5 explain how “new” money will be multiplied in the economy; and (c) Explain how the fractional reserve is monitored and maintained.arrow_forwardECB Bank is a commercial bank in Country A. The T-account of ECB Bank is shown below: Assume the Central Bank of Country A requires a reserve ratio of 8% and banks in Country A do not hold excess reserves currently.arrow_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_forward
- In the U.S., currency in circulation (C) is $1.2 trillion and the monetary base (B) is $3.7 trillion. Assume the reserve-deposit ratio (rr) and the currency-deposit ratio (cr) are both 0.25. What is the size of bank reserves (R)? What is the money multiplier? What is the money supply? What is the velocity of money if nominal GDP is $17 trillion? If the FOMC increases bank reserves (R) by $0.5 trillion and banks choose to hold all the additional reserves rather than loan them out, what is the new money supply? What is the new money supply if instead banks loan out 50% of the additional new reserves and households deposit all the additional loans? Assume that the velocity of money is constant and real GDP is growing at 1%. Use the numbers in part (a) to answer the next question. If the Fed wishes to keep the price level constant, how much (in dollars) do they need to increase the money supply?arrow_forwardWhich of these would lead to a decrease in demand for money? A) decrease in the price of goods and services B) increase in Price Level C) decrease in interest rates D) more and more businesses accept credit cards E) increase in real GDP F) increase in interest ratesarrow_forwardA financial depository institution's reserve requirement is a specified percentage of: Group of answer choices deposits that must be kept as actual reserves. regulated reserves provided by the federal government. required reserves that must be kept as part of actual reserves. actual reserves kept at the federal reserve. excess reserves that must be backed as required reserves.arrow_forward
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