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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Chapter 35, Problem 6RQ
To determine
Money creation.
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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
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.
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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.arrow_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_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
- Item Dollars Checkable Deposits Small Time Deposits Currency Money-Market Mutual Funds Held by Businesses Savings Deposits and Money-Market Deposit Accounts Money-Market Mutual Funds Held by Individuals In Billions $600 $700 $500 $1,200 $2,500 $800 What is the size of the M1 money supply? O $800 O $1,900 O $1,100 O $2,600arrow_forwardQUESTION 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_forwardIn a fractional-reserve banking system, each bank lends out 100% of deposits and does not keep reserves. Then, a one-dollar deposit will generate dollar(s) of money supply. 0 0 O infinite 01 O 10 O 100arrow_forward
- 0 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_forwardSuppose 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_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_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_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_forwardTable 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_forward
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