EP ECONOMICS,AP EDITION-CONNECT ACCESS
20th Edition
ISBN: 9780021403455
Author: McConnell
Publisher: MCGRAW-HILL HIGHER EDUCATION
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Chapter 34, Problem 4RQ
To determine
Reserve ratio and money creating potential.
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Now, suppose the reserve ratio in the banking system changes to 20% and a $100,000 is deposited into the first bank in
the system. What will be the immediate excess reserves for that first bank in the system and by how much can the total
money supply in the system expand?
O $100,000; $1,900,000.
O $80,000; $400,000
$90,000; $900,000.
O $10,000; $100,000.
QUESTION 1
If the reserve ratio is 5% then the money multiplier is?
O 20; This means that for every dollar deposited into a bank account, the money supply decreases by $20.
O 20. This means that for every dollar deposited into a bank account, the money supply increases by $20.
O 2. This means that for every dollar deposited into a bank account, the money supply decreases by $2.
O 20. This means that for every dollar deposited into a bank account, the money supply increases by $2.
Suppose there is an upswing in the economy with a large demand for finance
to invest by the residential and non-residential building sector such that
lending by all banks increases by $250 billion. On the assumption the reserve
(or liquidity) ratio of banks is 12% this expansion in economic activity will
result in an endogenous increase of
O $20 billion of reserves and $230 billion of bank deposit money
O $34.1 billion of reserves and $284.1 billion of bank deposit money
O $20 billion of reserves and $270 billion of bank deposit money
O $26.2 billion of reserves and $276.2 billion of bank deposit money
Chapter 34 Solutions
EP ECONOMICS,AP EDITION-CONNECT ACCESS
Ch. 34.1 - Prob. 1QQCh. 34.1 - Prob. 2QQCh. 34.1 - Prob. 3QQCh. 34.1 - Prob. 4QQCh. 34.5 - Prob. 1QQCh. 34.5 - Prob. 2QQCh. 34.5 - Prob. 3QQCh. 34.5 - Prob. 4QQCh. 34.6 - Prob. 1QQCh. 34.6 - Prob. 2QQ
Ch. 34.6 - Prob. 3QQCh. 34.6 - Prob. 4QQCh. 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. 1RQCh. 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. 6PCh. 34 - Prob. 7P
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- Suppose that a small country currently has $4 million of currency in circulation, $6 million of checkable deposits, $200 million of savings deposits, $40 million of small-denominated time deposits, and $30 million of money market mutual fund deposits. From these numbers we see that this small country's MI money supply is , while its M2 money supply is O $250 million; $270 million $210 million; $280 million $10 million; $270 million $10 million; $280 millionarrow_forwardFigure 30-3 On the following graph, MS represents the money supply and MD represents money demand. O 2.0. O 14.3. O 2.9. VALUE OF MONEY O 0.35. 0.35 MS, 8000 MS₂ Refer to Figure 30-3. Suppose the relevant money-supply curve is the one labeled MS₂; also suppose the economy's real GDP is 65,000 for the year. If the market for money is in equilibrium, then the velocity of money is approximately 13000 QUANTITY OF MONEY MDarrow_forwardIf Bank A has $3.8 million in total deposits, $860,000 in total reserves, and faces a 12 percent reserve requirement, the amount of money that Bank A could initially create by loaning out their excess reserves is: O $100,000. O $385,000 $404,000 O $756,800 O $3,366,667arrow_forward
- People in the economy have 350 billion CZK on current accounts, they have 250 billion CZK on saving accounts, people hold 200 billion CZK in cash, commercial banks hold 100 billion CZK in cash and the central bank holds 50 billion CZK in cash. What is the money stock M1? O 550 billion O 700 billion O 750 billion O 600 billionarrow_forwardUsing the simply multiple deposit multiplier model, if the Federal Reserve Bank wants lending to increase by $4,500, and th required reserve ratio is 5%, how much do they need to increase reserves by? O 225 O 205 O 270 O 255arrow_forwardSuppose the reserve ratio of a bank is 0.125 and the Fed buys $10 billion worth of government bonds. What is the maximum impact this has on the money supply? O $80 billion O-$15.625 billion $15.625 billion O $125 billionarrow_forward
- Which of the following statements is true about bonds? 1) A bond's dollar price is calculated as a growth rate. 2) The dollar price and interest rate of a bond have a positive relationship. 3) Bonds can never default. 4) The dollar price and interest rate of a bond have an inverse relationship. 5) Bonds are ownership shares in a firm.arrow_forwardCash: $104.25 billion Checking deposits: $157.4 billion Saving accounts: $270.5 billion Small denomination time deposits: $20.3 billion Bank reserves held at the Fed: $33.0 billion Suppose that in a certain economy, the above are the only forms of money. How much M2 money is there? O a. $565.15 billion O b. $282.15 billion O c. $427.90 billion O d. $303.50 billion O e. $137.25 billion O f. $552.45 billionarrow_forwardSuppose a customer makes a $2,280 cash withdrawal from Bank A. If the reserve requirement was total decrease in the money supply in the 6 percent, the deposit would ultimately lead to a economy, if all banks in the system lend out 100 percent of their excess reserves. O $2,143.20 O $2,280 O $28,500 O $35,720 $38,000arrow_forward
- Using the simply multiple deposit multiplier model, the Federal Reserve Bank desires to increase the size of checkable deposits by $50,500. If the required reserve ratio is 5%, then the Fed needs to purchase worth of securities in the open market. O $2,445 O $2,650 O $2,525 O $2,500arrow_forwardTable 29-6. Reserves Loans O $106,000 O $60,000 O $72,000 Assets O $50,200 Bank of Springfield $19,200 228,000 Refer to Table 29-6. Assume the Fed's reserve requirement is 6 percent and that the Bank of Springfield makes new loans so as to make its new reserve ratio 6 percent. From then on, no bank holds any excess reserves. Assume also that people hold only deposits and no currency. Then by what amount does the economy's money supply increase? Deposits Liabilities $240,000arrow_forwardIf a bank uses $100 of excess reserves to make a new loan when the reserve ratio is 25 percent, what happens to the money supply in the very short term? O a. It decreases by $100. O b. It increases by $25. O C. It decreases by $25. O d. It increases by $100. Show Transcribed Text Suppose a bank has $200,000 in deposits and $150,000 in loans. What is its reserve ratio? O a. 1 percent O b. 5 percent O C. 10 percent O d. 25 percent Show Transcribed Text Which list ranks the Bank of Canada's monetary policy tools from most to least frequently used? O a. bank rate changes; open-market transactions; reserve requirement changes O b. bank rate changes; reserve requirement changes; open-market transactions O c. open-market transactions; bank rate changes; reserve requirement changes O d. open-market transactions; reserve requirement changes; bank rate changesarrow_forward
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