Economics (Irwin Economics)
21st Edition
ISBN: 9781259723223
Author: Campbell R. McConnell, Stanley L. Brue, Sean Masaki Flynn Dr.
Publisher: McGraw-Hill Education
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Question
Chapter 34, Problem 2RQ
To determine
The M1 and M2 measure of money supply.
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4. a) Suppose that Tk.10,000 in new taka bills (never seen before) falls magically from the sky into your hands. What are the minimum increase and the maximum increase in the money supply that may result? Assume the required reserve ratio is 10 percent.b) Suppose you receive Tk. 10,000 from your grandmother and deposits the money in a saving account. your grandmother gave you the money by writing a check on her saving account. Would the maximum increase in the money supply still be what you found it to be in part a) where you received the money from the sky? Why or why not?c) Suppose that instead you getting Tk. 10,000 from the sky or a check through your grandmother, you get the money from your mother who had buried it in a can in her backyard. In this case, would the maximum increase in the money supply be what you found it to be in part a)? Why or why not?
7
Suppose that liabilities of the Central Bank are 90% reserves and 10% currency, and currency is not held by banks. Further, a 30% reserve/deposit limit for banks exists, and households hold 10% of their assets in currency, and the rest in deposits. A $1 increase in central bank liabilities at the stated 90/10 ratio leads to what $ increase in M2? [please answer the question NOT in %, but in absolute numbers]
Chapter 34 Solutions
Economics (Irwin Economics)
Ch. 34 - Prob. 1DQCh. 34 - Prob. 2DQCh. 34 - Prob. 3DQCh. 34 - Prob. 4DQCh. 34 - Prob. 5DQCh. 34 - Prob. 6DQCh. 34 - Prob. 7DQCh. 34 - Prob. 8DQCh. 34 - Prob. 9DQCh. 34 - Prob. 10DQ
Ch. 34 - Prob. 11DQCh. 34 - Prob. 12DQCh. 34 - Prob. 13DQCh. 34 - Prob. 14DQCh. 34 - The three functions of money are: LO34.1 a....Ch. 34 - Prob. 2RQCh. 34 - Prob. 3RQCh. 34 - Prob. 4RQCh. 34 - Prob. 5RQCh. 34 - Prob. 6RQCh. 34 - Prob. 7RQCh. 34 - Prob. 8RQCh. 34 - Prob. 9RQCh. 34 - Prob. 1PCh. 34 - Prob. 2PCh. 34 - Prob. 3PCh. 34 - Prob. 4PCh. 34 - Prob. 5P
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- Assume that the balance sheet of a bank in your assigned country as below:Assets LiabilitiesReserves $5,000 Deposits $40,000Loans $45,000 Capital $10,000a. If the required reserve ratio is 3 percent, then how much does this bank has excessreserves?b. Suppose a bank purchases $1,500 of government securities using funds from reserves.How much do bank assets change as a result of this transaction? Show the change inthe balance sheet above. How much does Money Supply change due to this transaction?c. Calculate the bank’s leverage ratio. What is the maximum decrease (in %) in the marketvalue of assets before the bank becomes insolvent?arrow_forwardBank A has $5,000 in reserves, all required to be held. The required reserve ratio is 10 percent. Bank A has checkable deposits of O $500. O $5,000. O $50,000. O $500,000.arrow_forward1. Let's pretend that our current system of money was strictly Base Ten, so that the only currency that we used were pennies, dimes, one dollar bills, ten dollar bills, hundred dollar bills, thousand dollar bills and so on. Instead of drawing pictures of the money, these abbreviations for each kind of coin or bill will be used: penny (A), dime (B), one dollar bill (C), ten dollar bill (D), hundred dollar bill (E), thousand dollar bill (F), and so on. Since you are entering the teaching profession, you probably won't need to handle anything higher than a thousand dollar bill, but who knows what the future holds? Write down the exchange that could be made for each of the following:a. AAAAAAAAAA = b. CCCCCCCCCC = c. EEEEEEEEEE = d. AAAAAAAAAA = e. CCCCCCCCCC = f. DDDDDDDDDD = a. AAABBCDD + AABBBBBBBBCC = b. ACCCCCCCEE + AAAABBCCCCCCCC = c. AAAAAAAAAEEE + AAAAAAAAEEEEEEE = 2. Let's pretend that our current system of money was strictly Base Ten, so that the only currency that we…arrow_forward
- Suppose that National bank has $36 million in checkable deposits, Commonwealth bank has $45 million in checkable deposits and the required reserve ratio for checkable deposits is 10%. If the National bank has $4 million in reserves and Commonwealth has $5 million iin reserves, how much excess reserves does each bank have? Suppose that a customer of the National bank writies a check for $2 million to a real estate broker who deposits the check at Commonwealth bank. After the check clears, how much excess reserves does each bank have?arrow_forward10 Look up data on FRED on what happened to the money supply and excess reserves in the 2007-2009 Great Recession and the 2020 Covid-19 contraction. By how much did M1 Money Stock and Excess Reserves increase in absolute dollars and in percentage terms from December 2007 to April 2014? How much did M1 Money Stock and Excess Reserves increase in absolute dollars and in percentage terms from February 2020 to May 2021?arrow_forwardSince the Fed has begun paying interest on bank reserves at the Fed, do barks still want to avoid holding excess reserves? Context: If lending was more profitable than the currently very low interest rate (formerly zero) that could be received from the Fed on excess reserves, we would still normally expect barks to lend out excess reserves rather than maintain them as excess reserves Judging from the fact that there has been a huge increase in holdings of excess reserves in the barking system, however, there may well be other constraints (such as Basel III) that may be limiting bank's willingness to lend out excess reserves.arrow_forward
- Suppose that Continental Bank has the simplified balance sheet shown below and that the reserve ratio is 20 percent:a. What is the maximum amount of new loans that this bank can make? Show in column 1 how the bank’s balance sheet will appear after the bank has lent this additional amount. b. By how much has the supply of money changed? Explain. c. How will the bank’s balance sheet appear after checks drawn for the entire amount of the new loans have been cleared against the bank? Show the new balance sheet in column 2. d. Answer questions a, b, and c on the assumption that the reserve ratio is 15 percent.arrow_forwardConsider a situation where the central bank increases the money supply. equal, if nominal GDP increased by $800 billion during a time when veloc did the central bank increase the money supply? O $400 million O $200 million O $200 billion O $400 billion No new data to save. Last checkarrow_forwardD7 Suppose that people hold 17 cents out of every dollar of deposits as currency. Suppose that banks hold 13 cents out of every dollar of deposits as excess reserves. If the Fed buys $100 billion worth of Treasury securities on the open market, what is the change in the money supply? Make sure to express your answers in billions. Make sure to round your answers to the nearest 100th decimal points. For example, 24.56 for $24.56 billion.arrow_forward
- 2. Consider the demand for money curve. As we move down and to the right along the curve, the opportunity cost of holding money is increasing, so households and firms decrease their desired money holdings. is declining, so households and firms increase their desired money holdings. is increasing, so households and firms increase their desired money holdings. is declining, so households and firms decrease their desired money holdings.arrow_forwardThe Fed purchases $1 million of U.S. government securities from First Bank. The required reserve ratio is 10 percent, the currency-deposit ratio is 5 percent, and banks loan all excess reserves. The total increase in monetary base is _____ and the total increase in money supply (M1) is _____. O. $1 million; $3 millionO. $3 million; $1 milionO. $1million; $7 millionO. $7 million: $1 millionarrow_forward
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