Economics: Principles and Policy (MindTap Course List)
13th Edition
ISBN: 9781305280595
Author: William J. Baumol, Alan S. Blinder
Publisher: Cengage Learning
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Chapter 29, Problem 3DQ
To determine
Definition of money.
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Students have asked these similar questions
Suppose Adrienne receives a payment in cash of $400 and she deposits it in a bank.
i. If the banking system is 100 percent reserve, how does the money supply change?
i. If the reserve requirement is 10 percent and the bank holds no excess reserve, how does the money supply
change?
in. If the reserve requirement is 10 percent and the bank holds an excess reserve of 2 percent, how does the
money supply change?
iv. Now suppose the reserve ratio is 25 percent. How much money can be created
from $100 of reserves? Show your work.
Suppose all banks have zero excess reserves. The Fed buys bonds for $1 million and a bond dealer deposits the check in his or her bank. The required reserve ratio
is 15 percent. The bank loans out the maximum it is allowed to a local business. The business writes a check for the full amount for supplies, which is then
deposited in another bank. The largest loan the second bank can make is:
The largest loan the second bank can make is $. (Round your answer to the nearest dollar.)
What steps can the Federal Reserve take to increase the money supply?
a) The Federal Reserve can reduce personal income tax rates to encourage households to spend more money
b) The Federal Reserve can require all banks to close by 4:00 pm on weekdays and remain closed on weekends.
c) The Federal Reserve can increase reserves requirements for banks
d) The Federal Reserve and raise the discount
e) The Federal Reserve can buy US Treasury securities
e) The Federal Reserve
Chapter 29 Solutions
Economics: Principles and Policy (MindTap Course List)
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Similar questions
- What are the three tools of the Federal Reserve? Explain how each can be used to increase the money supply.arrow_forwardWhich of the following is the role of the Federal Reserve System? Select one: a. Set the Required Reserve Ratio for Bank of America b. Manage the account for South Carolina and other state governments c. Make loans to local businesses d. Print new money e. All of these are roles of the Fedarrow_forwardAccording to Reuters, the People’s Bank of China hasbeen using targeted increases in banks’ reserve requirement ratios (RRR) in recent months. Explain why centralbanks impose reserve requirements for commercial banks.Why do commercial banks try to avoid this requirement?arrow_forward
- Banking and the Expansion of the Money Supplyarrow_forwardIn a system of “fractional reserve banking” such as ours, banks have the ability to create (and destroy) money. Explain how banks have the ability to create money by assuming Bank A takes in a $10,000 deposit. (Make up your own numbers as needed.) In part a, what was the reserve to deposit ratio used? How does the size of the reserve to deposit ratio affect how much money a bank can create out of a $10,000 deposit?arrow_forwardThe banking system has $5,000 in reserve, $45,000 in loans, and $50,000 in deposits. Currently the reserve requirement is 10%. If the Fed lowers reserve requirement to 5%, the banking system converts 75% excess reserves to loans, but borrowers return only 60% of these funds to the banking system as deposits. What is the maximum amount of loans the banking system could make?arrow_forward
- Suppose that Serendipity Bank has excess reserves of $8,000 and checkable deposits of $150,000. Instructions: Enter your answer as a whole number. If the reserve ratio is 20 percent, what is the size of the bank's actual reserves?arrow_forwardMoney and Banking Economics: Evaluate the following statement: "The Federal Reserve can perfectly control the size of the money supply"arrow_forwardIn the United States, the Federal Reserve sets the reserve requirement, which banks must meet through deposits at the Federal Reserve district banks and cash held at the bank. What does this requirement achieve? Check all that apply. a. It ensures that banks cannot hoard money by holding too many reserves. b. It means that a bank must have one dollar of deposits for every dollar it lends out. c. It helps to prevent bank runs by reassuring the public that banks will not make too many loans and run out of cash. d. It helps to facilitate transfers of funds between banks when a customer from one bank writes a check to a customer of another bank.arrow_forward
- The task I am struggling with: Tracy Williams deposits $500 that was in her sock drawer into a checking account at the local bank. The reserve ratio is 10%. a) how dies the deposit initially change the T-account of the local bank? How does it change the money supply? b) If the bank maintains a reserve ratio of 10%, how will it respond to the new deposit? c) if every time the bank makes a loan, the loan results in a new checkable bank deposit in a different bank equal to the amount of the loan, by how much could the total money supply in the economy expand in response to Tracy´s initial cash deposit of $500? Thank you very much for your help.arrow_forwardPlease answer the following attached question:arrow_forwardUse the following information to answer the questions: Suppose the Texans Bank has total deposit of $2,769, and the required reserve ratio of 6 percent. The current total reserve for the bank is $438. What is the excess reserve for this bank? [Hint: enter your answer in 2 decimal places)arrow_forward
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