Identify the impact on the quantity of money.

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Chapter 25, Problem 9SPA

(a)

To determine

Identify the impact on the quantity of money.

(b)

To determine

Identify the money multiplier.

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Assume that the Habib Bank of Pakistan has total reserves of Rs. 50 Million. Assume also that required reserves are 15 percent of checking deposits and that bank hold no excess reserves and households hold no currency. Show a T-account for Habib Bank Calculate the money multiplier and Calculate the money supply If the State Bank of Pakistan now raises required reserves to 25 percent of deposits, What will be the effect on money multiplier? . What will be the effect on Reserves? What will be the effect on money Supply?

a. Assume that all the money is held as a deposit while banks keep 10% of the deposit as a reserve. Estimate the money multiplier and money supply in the economy. b. Assume that the public is holding 40% of their assets as currency while depositing the remaining in banks, while banks keep 10% of deposit as a reserve. Estimate the money multiplier and money supply in the economy.

Assume that the banking system has total reserves of Rs.250 billion. Assume also that required reserves are 10 percent of checking deposits and that banks hold no excess reserves and households hold no currency. a. Calculate the money multiplier? b. Calculate the money supply? If the State Bank of Pakistan now raises required reserves to 12.5 percent of deposits, c. Calculate the money multiplier? d. What will be the effect on Reserves? (Please write only one word "Increase", "Decrease", or "No Change" in the blank) e. The amount of money supply will decline to (Write a number in the box) Note: Write amount in Billions only and ignore typing % sign for reserve rate