Question
(Q1) Third National Bank has reserves of $20,000 and checkable deposits of $100,000. The reserve ratio(R) is 20%. Households deposit $5000 as currency and that
(Q1) Third National Bank has reserves of $20,000 and checkable deposits of $100,000. The reserve ratio(R) is 20%. Households deposit $5000 as currency and that currency is added to reserves. What level of excess reserves does the bank have now?(5)
(Q2) You take $100 and deposit it into your local bank account. If this $100 stays in the banking system as reserves and if banks required reserves equal to 10% of deposits, by how much does the total amount of deposits in the banking system increase?
By how much does the money supply increase?(5)
(Q3) Assume that Jim Cash has $2,000 in his checking account at Folsom Bank and uses his checking account card to withdraw $200 of cash from the bank's ATM machine. By what dollar amount did the M1 money supply change because of this single isolated transaction?(3)
(Q4) (a) The M1 money supply is composed of:
A.
All coins and paper money held by the general public and the banks
B.
Bank deposits of households and business firms
C.
Bank deposits and mutual funds
D.
Checkable deposits and currency in circulation
(b) The Federal Open Market Committee (FOMC) of the Federal Reserve System is primarily for:
A.
Maintaining cash reserves that can be used to settle international transactions
B.
Supervising banks to make sure that markets are open to all and remain competitive
C.
Issuing currency and acting as the fiscal agent for the Federal government
D.
Setting the Fed's monetary policy and directing the purchase and sale of government securities
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