7.2 Money: Homework o 10 points eBook O References Saved The table below shows information on a small nation. Money Supply $100,000 'elocity of Money 5 Real GDP [$5.000 a. What is the price level? b. Suppose the nation decides to increase the money supply to $125,000. If the velocity of money and real GDP remain unchanged, what is the new price level? 7.2 Money: Homework i Saved 9 Suppose the reserve requirement is 15%, banks hold no excess reserves, and there are no additional currency holdings. For each of the following scenarios, find the change in deposits, reserves, and loans for each bank. 2 Instructions: Round your answers to two decimal places. points a. Mickey receives his paycheck of $3,000 for the week and deposits the check at First Bank. Use the table below to show the change in assets and liabilities at First Bank resulting from this transaction. eBook Assets Liabilities Change in Reserves: $ Change in Deposits: $ Change in Loans: $ References b. Suppose that Austin gets a loan from First Bank in the amount from the "Loans" cell in the table in part a, and uses it to buy some jewelry from Jenny. Jenny takes the money from Austin and deposits it at Second Bank. Use the table below to show the change in assets and liabilities at Second Bank resulting from this transaction. Assets Liabilities Change in Reserves: $ Change in Deposits: $ Change in Loans: $ C. Now suppose that Mary gets a loan from Second Bank in the amount from the "Loans" cell in the table in part b, and purchases a television from Jasper with the money. Jasper takes the money from the sale of the television and deposits it into Third Bank. Use the table below to show the change in assets and liabilities at Third Bank resulting from this transaction. Assets Liabilities Change in Reserves: $ Change in Deposits: $ Change in Loans: $ d. This process continues with each additional change in deposits, reserves, and loans becoming smaller until no more loans can be made. Therefore, the change in money created will be (Click to select) | the amount of the initial deposit under fractional reserve banking.polnts References Suppose the Federal Reserve set the reserve requirement at 20%. Assume that banks lend all reserves that are not required to be held. Instructions: Round your answers to two decimal places. a. Complete the table below based on this information. Fractional Reserve Banking Reserves Required to be Transaction Deposit Held Reserves to Lend Out Seal? r'ECEiVE.S $1,000 in cash and deposits the funds into $1,000.60 5 his checking account. Sean's bank loans Maria all reserves that are not required to be held Jackson's bank loans Paul all reserves that are not required to be held Total Money Created by Transactions b. Suppose instead that the reserve requirement is 15%. Complete the table using the new reserve requirement. Maria's bank loans Jackson all reserves that are not required to be held. Fractional Reserve Banking Reserves Required to be Transaction Deposit Held Reserves to Lend Out Seal? r'ECEiVE.S $1,000 in cash and deposits the funds into 31,000.00 5 his checking account. Sean's bank loans Maria all reserves that are not required to be held Jackson's bank loans Paul &ll reserves that are not required to be held Total Money Created by Transactions c_ As the reserve requirement decreases, the amount of money created |(Click to select) | Maria's bank loans Jackson all reserves that are not required to be held. Suppose the Federal Reserve sets the reserve requirement at 8%, banks hold no excess reserves, and no additional currency is held. Instructions: In part a, round your answer to one decimal place. In parts b and , enter your answers as a whole number. If you are 2 entering a negative number include a minus sign. polnts a. What is the money multiplier? eBook b. How much will the total money supply change by if the Federal Reserve changes reserves by $70 million? E % million References Suppose the Federal Reserve wants to increase the total money supply by $400 million. c. How much should the Federal Reserve increase reserves to achieve this goal? % million