I know the correct answers to these questions i just need to know the math behin
ID: 2794191 • Letter: I
Question
I know the correct answers to these questions i just need to know the math behind them should the number change. Thank you in advance!
(1) If the required reserve ratio is 15 percent, currency in circulation is $400 billion, checkable deposits are $800 billion, and excess reserves total $0.8 billion, then the M1 money multiplier is
A) 2.5.
B) 1.67.
C) 2.3.
D) 0.651
(2) In the simple deposit expansion model, a decline in current deposits of €1,000 when the required reserve ratio is equal to 20 percent implies that the ECB
A) sold €200 in government bonds.
B) sold €500 in government bonds.
C) purchased €200 in government bonds.
D) purchased €500 in government bonds.
(3) IIf a bank has €200,000 of current (checkable) deposits, a required reserve ratio of 20 percent, and it holds
€80,000 in reserves, then the maximum deposit outflow it can sustain without altering its balance sheet is
A) 50,000.
B) 40,000.
C) 30,000.
D) 25,000
(4) If the required reserve ratio is 15 percent, the simple deposit multiplier is
A) 15.0.
B) 1.5.
C) 6.67.
D) 3.33.
Explanation / Answer
Answer (1): B 1.67
money multiplier = 1+currency drain ratio / curreny drain ratio + desired reserve ratio.
Answer (2): A sold €200 in government bonds
Answer (3): B 40000
as it is 80000-(200000*0.2) = 80000-40000 = 40000
Answer (4): A 15.0
Required Reserves = m x Demand Deposits where m is the required reserve ratio