Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Answer it if you are 100% sure otherwise I'll downvote Suppose that the required reserve ratio is 11%, currency in circulation is $800 billion, the

Answer it if you are 100% sure otherwise I'll downvote

image text in transcribed
Suppose that the required reserve ratio is 11%, currency in circulation is $800 billion, the amount of checkable deposits is $920 billion, and excess reserves are $25 billion. a) Calculate the money supply, the currency deposit ratio, the excess reserve ratio, and the money multiplier. (4 marks) b) Suppose the central bank conducts an unusually large open market purchase of bonds held by banks of $1,800 billion due to a sharp contraction in the economy. Assuming the ratios you calculated in part (a) remain the same, predict the effect on the money supply. (2 marks) c) At the start of the COVID 19 crisis, the Federal Reserve began injecting the banking system with massive amounts of liquidity. Explain what would happen to the economy and money multiplier if large amounts of reserves are held as excess reserves. (2 marks)

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Water Pollution Economics Aspects And Research Needs

Authors: Allen V Kneese

1st Edition

1317387554, 9781317387558

More Books

Students also viewed these Economics questions

Question

6. How can a message directly influence the interpreter?

Answered: 1 week ago