(a) Determine whether the money multiplier will increase or decrease following an increase in each of...
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(a) Determine whether the money multiplier will increase or decrease following an increase in each of the following ratios. No explanation is required. [3 Points; 1 Point each] (i) The required reserve (rr) ratio (ii) The currency to deposit (c) ratio (iii) The excess reserve to deposit (er) ratio (b) Given the data below calculate the money multiplier (m). [4 Points] Currency: $700 bilion Checkable Deposits: $450 billion Total Reserves: $75 billion Excess Reserves: $30 billion (c) Suppose that the Federal Reserve purchases $50 billion worth of bonds. Does this affect the non- borrowed or borrowed monetary base? Using your answer from Part (a) calculate by how much would the money supply change in the economy based on this transaction. [4 Points] Page 2 of 3 (d) Suppose that in the banking system the amount of currency in circulation has decreased to $650 billion from its initial level of $700 billion. Assume that all other variables remain constant. Given the change in currency, calculate the new money multiplier (m). [4 Points] (e) Briefly explain in words why a decrease in the currency deposit ratio will raise the money supply in the economy. [4 Points] (a) Determine whether the money multiplier will increase or decrease following an increase in each of the following ratios. No explanation is required. [3 Points; 1 Point each] (i) The required reserve (rr) ratio (ii) The currency to deposit (c) ratio (iii) The excess reserve to deposit (er) ratio (b) Given the data below calculate the money multiplier (m). [4 Points] Currency: $700 bilion Checkable Deposits: $450 billion Total Reserves: $75 billion Excess Reserves: $30 billion (c) Suppose that the Federal Reserve purchases $50 billion worth of bonds. Does this affect the non- borrowed or borrowed monetary base? Using your answer from Part (a) calculate by how much would the money supply change in the economy based on this transaction. [4 Points] Page 2 of 3 (d) Suppose that in the banking system the amount of currency in circulation has decreased to $650 billion from its initial level of $700 billion. Assume that all other variables remain constant. Given the change in currency, calculate the new money multiplier (m). [4 Points] (e) Briefly explain in words why a decrease in the currency deposit ratio will raise the money supply in the economy. [4 Points]
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a i The required reserve rr ratio Decrease ii The currency to deposit c ratio Decrease iii The exces... View the full answer
Related Book For
Money, Banking, and the Financial System
ISBN: 978-0134524061
3rd edition
Authors: R. Glenn Hubbard, Anthony Patrick O'Brien
Posted Date:
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