Answer Blanks: Simple Money Multiplier: 10%- 100, 4, 10, 1, 2, 5 5%- 2, 12.5, 40
ID: 1209981 • Letter: A
Question
Answer Blanks:
Simple Money Multiplier:
10%- 100, 4, 10, 1, 2, 5
5%- 2, 12.5, 40, 10, 200, 20
Money Supply (Checkable Deposits):
10%- $1.5 trillion, $600 billion, $30 trillion, $3 trillion, $800 billion, $300 billion
5%- $750 billion, $800 billion, $6 trillion, $3 trillion, $300 billion, $60 trillion
1. larger, smaller
2. buy, sell
3. $20 billion, $40 billion, $5 billion, $100 billion, $50 billion
4. rise, fall
5. 15, 5, 10, 20, 4
6. buy, sell
7. $100 billion, $5 billion, $20 billion, $200 billion, $25 billion
Assume that banks do not hold excess reserves and that households do not hold currency-the only form of money is checkable deposits. Suppose the banking system has total reserves of $300 billion. Find the simple money multiplier and the money supply for each reserve requirement listed in the following table. Money Supply (Checkable Deposits) Reserve Requirement 10% 5% Simple Money Multiplier For a given level of reserves, a lower reserve requirement is associated with a money supply. Suppose the Federal Reserve (the Fed) wants to increase the money supply by $100 billion. Again, you can assume that banks do not hold excess reserves and that households do not hold currency. If the reserve requirement is 5%, the Fed will use open-market operations to worth of U.S. .government bonds Now, suppose that rather than immediately lending out all excess reserves, banks begin holding some excess reserves due to uncertain economic conditions. Specifically, in addition to the required reserves of 5%, banks hold an additional 15% of their deposits as reserves. This increase in the reserve ratio causes the money multiplier to Fed would need to billion to . Under these conditions, the worth of U.S. government bonds in order to increase the money supply by $100Explanation / Answer
Simple Money Multiplier:
10%- 10 (Explanation: money multiplier = 1/RR = 1/0.10 = 10)
5%- 20 (Explanation: money multiplier = 1/RR = 1/0.05 = 20
Money Supply (Checkable Deposits):
10%- $3 trillion (Explanation: 10*$300billion)
5%- $6 trillion (Explanation: 20*$300billion)
1. larger (Explanation: Money supply and RR are inversly related)
2. buy
3.$5 billion (Explanation: multiplier = 1/0.05 = 20. so to increase $100 mone supply fed will use 100/20 = $5 billion bond
4. fall
5. 5 (Explanation: 1/0.20)
6. sell
7. $20 billion (Explanation: $100/5 = $20 billion)
The fed cannot control the amount of money that households choose to hold as currency