Monetary Policy (Chapters 13-15)

Checking Deposits = $1,000; Coins = $10; Federal Reserve Notes = $900

Foreign Currency = $80; Money Market Funds = $1,000;

Mortgage Securities = $2,000; Savings Deposits = $19,000;

Time Deposits (large) = $200; Time Deposits (small) = $500;

Traveler's Checks = $40; Treasury Securities = $6,000

Part III: If the Federal Reserve increased the money supply by $1 million via the purchase of treasury securities in "Open Market Operations." For each of the following required reserve ratios (r) calculate the simple money multiplier (SMM)and show by how much the money supply (MS) could potentially grow after the money worked its way through the banking system. Show your work, or specify the formulas.

r = 0.0833 SMM = MS =

r = 0.10 SMM = MS =

r = 0.1429 SMM = MS =

Now cite one reason why the growth in the money supply would likely be smaller, perhaps much smaller, than the above results would imply.