The total money supply M has two components: bank deposits D and cash holdings C, which we assume to bear a constant ratio C/D = c, 0 < c < 1. The high-powered money H is defined as the sum of cash holdings held by the public and the reserves held by the banks Bank reserves are a fraction of bank deposits, determined by the reserve ratio r, 0

The total money supply M has two components: bank deposits D and cash holdings C, which we assume to bear a constant ratio C/D = c, 0 < c < 1. The high-powered money H is defined as the sum of cash holdings held by the public and the reserves held by the banks Bank reserves are a fraction of bank deposits, determined by the reserve ratio r, 0

Macroeconomics

13th Edition

ISBN:9781337617390

Author:Roger A. Arnold

Publisher:Roger A. Arnold

Chapter13: The Federal Reserve System

Section: Chapter Questions

Problem 8WNG

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Assets Vault Cash Deposits at Fed Loans Total $50,000 $200,000 $600,000 $850,000 Liabilities and Net Worth First Southern's bank reserves are equal to $ checking deposits, First Southern' would maintain $ reserves over and above the desired amount. Deposits $850,000 Total The increase in the money supply will be $850,000 If First Southern bank wanted to maintain 0.10 of its assets as reserves against as reserves. Therefore, it would have $ as additional If First Southern uses the reserves above the desired level to extend additional loans, the money supply would increase by S If First Southern wanted to maintain 0.05 of its assets as reserves against checking deposits, First Southern' would maintain S as reserves, additional reserves would be $ and the increase in the money supply would be $ if First Southern chooses a desired reserve ratio of 0.05.
When a banking system hold some excess reserves to anticipate withdrawals or some uncertainties, and the public held some cash at home rather than depositing it in a bank, the money multiplier will be: a)equals to: 1 divided by the required reserve ratio b)more than: 1 divided by the required reserve ratio c)less than: 1 divided by the required reserve ratio d)none of the above Gold-backed money: a)uses more gold resources than does the commodity money such as gold coins b)has no intrinsic value but the value is guaranteed that it can be converted into gold at certain price c) is a way to provide the functions of money without tying up its value to gold d)none of the above
What is the defining difference among our various measures of money supply, such as M1 and M2? The defining difference is origin, whether the money is issued by the Federal Reserve Bank or the Federal Government The defining difference is liquidity, how quickly the instrument could be turned to cash and expended The defining difference is regulation, how much control the Federal Reserve Bank has over the relative amounts of M1 or M2 in circulation The defining difference is function, whether the money is used to meet transactions demand or asset demand
a) Define M1 and M2 using the definition of money supply in Hong Kong. b) Suppose you buy $300,000 ibonds from the Hong Kong government, in which $200,000 are financed by your cash, and $100,000 are paid by writing a cheque. Explain the impact on M1 and M2 using the definition of money supply in Hong Kong. c) Explain in terms of the three functions of money, how cigarettes could be called "money" in prisoner-of-war camps of World War II.
which of the following is a reason why bitcoin is not included in the bank of canada's measures of the money supply? a)btc are bot appropriately divisible b)limited nuöber of btc mean inflation will not undermine value c) only very small portüon of transactions are in btc d)btc is not accepted as payment in canada e)recent collapses of btc exchanges have reduced the banks confidence in btc
Complete the following table to show the effect of a new deposit on excess and required reserves when the required reserve ratio is 20%. Hint: If the change is negative, be sure to enter the value as negative number. Amount Deposited Change in Excess Reserves Change in Required Reserves (Dollars) (Dollars) (Dollars) 750,000 Now, suppose First Main Street Bank loans out all of its new excess reserves to Kate, who immediately uses the funds to write a check to Hubert. Hubert deposits the funds immediately into his checking account at Second Republic Bank. Then Second Republic Bank lends out all of its new excess reserves to Shen, who writes a check to Poornima, who deposits the money into her account at Third Fidelity Bank. Third Fidelity lends out all of its new excess reserves to Valerie in turn. Fill in the following table to show the effect of this ongoing chain of events at each bank. Enter each answer to the nearest dollar. Increase in Deposits Increase in Required Reserves…
What is the money multiplier, if in an economy banks operate with a reserve ratio of 20 per cent? a) 4 b) 25 c) 20 d) 5
Suppose Southeast Mutual Bank, Walls Fergo Bank, and PJMorton Bank all have zero excess reserves. The required reserve ratio is presently set at 20%. Charles, a Southeast Mutual Bank customer, deposits $1,500,000 into his checking account at the local branch. Complete the following table to reflect any changes in Southeast Mutual Bank's T-account (before the bank makes any new loans). Assets Complete the following table to show the effect of a new deposit on excess and required reserves when the required reserve ratio is 20%. Hint: If the change is negative, be sure to enter the value as negative number. Amount Deposited Change in Excess Reserves (Dollars) (Dollars) 1,500,000 Liabilities Change in Required Reserves (Dollars) Now, suppose Southeast Mutual Bank loans out all of its new excess reserves to Ana, who immediately uses the funds to write a check to Yakov. Yakov deposits the funds immediately into his checking account at Walls Fergo Bank. Then Walls Fergo Bank lends out all of…
Assume there is an economy with a single bank, and the central bank sets the reserve requirement ratio at 10%. Assume also that the only bank had no transactions (i.e., no loans, reserves, or deposits) prior to an individual who deposits $10,000 of currency with the bank. a) As a result of this deposit, calculate the amount of required reserves, actual reserves, and excess reserves. b) What is the size of the money multiplier for this economy? (b) After the bank has issued the maximum amount of loans, what will be the total amount of loans, deposits, and money in the economy? (d) If the central bank wants to increase the money supply by $6,000, should it buy or sell bonds? Also, how many bonds should it buy or sell?
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?
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 ncrease in the money supply be what you found it to be in part a)? Why or why not?
Suppose the required reserve ratio is 20%. What is the maximum amount of total money supply that can be created from an initial deposit of $200? In general, why might the actual amount of total money creation be less than the maximum?