Economics (7th Edition) (What's New in Economics)
Economics (7th Edition) (What's New in Economics)
7th Edition
ISBN: 9780134738321
Author: R. Glenn Hubbard, Anthony Patrick O'Brien
Publisher: PEARSON
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Chapter 25, Problem 25.2.10PA
To determine

The value of M1 money supply.

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Suppose First Main Street Bank, Second Republic Bank, and Third Fidelity Bank all have zero excess reserves. The required reserve ratio is 25%. The Federal Reserve buys a government bond worth $1,800,000 from Felix, a customer of First Main Street Bank. He deposits the money into his checking account at First Main Street Bank. Now, suppose First Main Street Bank loans out all of its new excess reserves to Deborah, who immediately writes a check for the full amount to Carlos. Carlos then immediately deposits the funds in his checking account at Second Republic Bank. Then Second Republic Bank lends out all of its new excess reserves to Larry, who writes a check to Janet, who deposits the money in her account at Third Fidelity Bank. Finally, Third Fidelity lends out all of its new excess reserves to Megan. Assume this process continues, with each successive loan deposited into a checking account and no banks keeping any excess reserves. Under these assumptions, the $1,800,000 injection…
Personal possession of currency is prohibited in U.S. prisons, although, in practice, prisoners still exchange goods and services. U.S. prisoners used cigarettes as a medium of exchange until smoking was banned in U.S. prisons in 2003. After 2003, prisoners looked to other items on the commissary menu to facilitate exchange. In 2008, the Wall Street Journal reported that energy bars had caught on as money in some U.S. prisons. One important difference between using energy bars and using dollars as money is that____    have intrinsic value.   Energy bars are an example of ___   money.
You just deposited $4,000 in cash into a checking account at the local bank. Assume that banks lend out all excess reserves and there are no leaks in the banking system. That is, all money lent by banks gets deposited in the banking system. Round your answers to the nearest dollar. If the reserve requirement is 20%, how much will your deposit increase the total value of checkable bank deposits? If the reserve requirement is 8%, how much will your deposit increase the total value of checkable deposits? Increasing the reserve requirement decreases the money supply. %24 %24
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