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 7P
To determine
Money multiplier and the required reserve ratio.
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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.
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.
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 $2,500
Chapter 35 Solutions
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- Suppose 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_forwardSuppose 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.arrow_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
- 1. 2. 3. Which expression describes the flattest money demand schedule? O a. 1=450-2(3) O b. 1=450-9(3) O c. L-5(200)-5(10) O d. L=5(200)-8(10) Which of the following will lead to an increase in the equilibrium interest rate in the money market? O a. Increase in general price level O b. An increase in income O c. Decrease in general price level d. The Central Bank increases money supply Which of the following statements describes the LM curve? O a. It has a negative slope. O b. It describes the relationship between supply and demand of goods. O c. It represents the combination of interest rate and income where the goods market is in equilibrium. O d. None of the abovearrow_forwardSuppose 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_forwardScenario: Assets and Liabilities of the Banking System Assets Loans Reserves Reference Ref 14-12 O $111.111 O $250,000 $900,000 100,000 O $666,667 O $1 million Liabilities Deposits (Scenario: Assets and Liabilities of the Banking System) Suppose that the reserve ratio is 10% when the Fed buys $100,000 worth of U.S. Treasury bills from the banking system. If the banking system does NOT want to hold any excess reserves. will be added to the money supply. $1,000,000arrow_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_forwardSuppose that in a certain banking system, the target reserve ratio is 45%. Keeping in mind the money multiplier, if the central bank in this economy wanted to expand the money supply by $400 billion, then by how much would this central bank need to increase the monetary base (MB)? O a. $355.00 billion O b. $72.50 billion O c. $180.00 billion O d. $11.25 billion O e. $27.59 billion f. $360.00 billion g. $7.27 billionarrow_forwardSuppose 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 10arrow_forward
- MSo MS, 10 2 MD 3.0 3.1 3.2 3.3 3.4 3.5 Real money (trillions of 2000 dollars) The figure above illustrates the effect of 1) a decrease in the required reserve ratio. O 2) an increase in the required reserve ratio. O 3) a rise in the discount rate. O 4) a Fed open market sale of government securities. Interest rate (percent per year)arrow_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_forwardItem 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_forward
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