8. The BASIC fi nancial system has a required reserves ratio of 15

percent; initial excess reserves are $5 million, cash held by the public

is $1 million and is expected to stay at that level, and no other leakages

or adjustments are in the system.

a. What would be the money multiplier and the maximum

amount of checkable deposits?

b. What would be the money supply amount in this system after

deposit expansion?

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10. The COMPLEX fi nancial system has these relationships: The

ratio of reserves to total deposits is 12 percent, and the ratio of

noncheckable deposits to checkable deposits is 40 percent. In addition,

currency held by the nonbank public amounts to 15 percent of

checkable deposits. The ratio of government deposits to checkable

deposits is 8 percent, and the monetary base is $300 million.

a. Determine the size of the M1 money multiplier and the size of

the money supply.

b. If the ratio of currency in circulation to checkable deposits

were to drop to 13 percent while the other ratios remained the

same, what would be the impact on the money supply?

c. If the ratio of government deposits to checkable deposits

increases to 10 percent while the other ratios remained the

same, what would be the impact on the money supply?

d. What would happen to the money supply if the reserve

requirement increased to 14 percent while noncheckable

deposits to checkable deposits fell to 35 percent? Assume the

other ratios remain as originally stated.