Q25

Question 25 8 pts 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 mar 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)