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 35, Problem 4P
To determine
Excess reserves .
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Suppose a banking system has a required reserve ratio of 10% 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?
$70,000; 700,000.
O $100,000; $1,900,000.
$90,000, $900,000.
O $10,000; $100,000.
Suppose that Cat nation has $125 million in money. There is only one bank in Cat nation
and it holds 15% of the deposits as reserves. What is the money multiplier in this economy?
O 6.67
20
O 12.67
10
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 million
Chapter 35 Solutions
Economics (Irwin Economics)
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Similar questions
- 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 moneyarrow_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_forward0 Question 16 Suppose the following: • Smokey Bank has total deposits of $600,000. In addition, it currently has outstanding loans in the amount of $400,000 Finally, the required reserve ratio is 15%. . . What is the money multiplier? O 0.90 0.10 090 15 O 6.67arrow_forward
- 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.arrow_forwardIf Bank A's total reserves are $10.8 million, its excess reserves are $4.60 million, and the required reserve ratio is 4%, then Bank A's required reserves equal and its total deposits equal $6.2 million; $105 million $6.6 million; $165 million O $6.6 million; $270 million O $6.1 million; $122 million $6.2 million; $155 millionarrow_forwardRefer to the table below. Item Dollars In Billions Checkable Deposits $600 Small Time Deposits $700 Currency $500 Money-Market Mutual Funds Held by Businesses $1,200 Savings Deposits and Money-Market Deposit Accounts $2,500 Money-Market Mutual Funds Held by Individuals $800 What is the size of the M1 money supply? O $800 O $2,600 O $1,900 O $1,100arrow_forward
- 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.arrow_forwardAssume that Bank A holds total reserves of $978, the required reserves are $432 and total deposit is $3,600. If the government purchases bonds worth $260 from Bank A, excess reserves of this bank will increase by O $220 O $246.40 O $227.50 $245 $228.80arrow_forwardUsing 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_forward
- Table 29-4 Reserves Loans 6.0 6.4 15.6 Assets O 16.7 Bank of Pleasantville Refer to Table 29-4. Assume there is a reserve requirement and the Bank of Pleasantville is exactly in compliance with that requirement. Assume the same is true for all other banks. Lastly, assume people hold only deposits and no currency. What is the money multiplier? $3,000 Deposits 47,000 Liabilities $50,000arrow_forwardAssets Liabilities Reserves $30 Deposits $1,000 Loans $970 Total $1,000 Total $1,000 The above table gives the initial balance sheet for Mega Bank. Barney comes into the bank and deposits $50 of currency into his checking account. The desired reserve ratio is 3 percent. After Barney's deposit, but before any other actions occur, MegaBank will have excess reserves of O $48.50 $50.00 O $15.00 O $33.00arrow_forwardReserves Loans = A. 250/0.16 $1,562.5 B. 300/0.16 $1,875 C. 500/0.17 = $2,941.18 D. 300/0.196= $1,530.61 O E. not enough information to determine = Bank North's Balance Sheet Assets $300 Deposits Capital $1,800 $2,100 Refer to the table above. Assume that Bank North is operating at its target reserve ratio and has no excess reserves, and that all commercial banks have the same target reserve ratio. If a new deposit to the Canadian banking system of $500 is deposited at Bank North, the total new deposits created in the banking system can be calculated as follows: Liabilities $1,800 $300 $2,100arrow_forward
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