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Question 1

Suppose that the required reserve ratio (R) is 9 percent and that banks do not hold any excess reserves.

What is money multiplier, given this situation?

Hint

Question 2

Suppose that the Fed conducts a $280 million open market purchase of government bonds.

In addition, suppose that the required reserve ratio is 25 percent and that banks do not hold any excess reserves.

What is the effect on the money supply? More precisely, by how much will the money supply increase?

Hint

Question 3

Suppose that the Fed sell $360 million of government bonds.

In addition, suppose that the required reserve ratio (R) is 17 percent and that banks do not hold any excess reserves.

What is money multiplier?

Hint

Question 4

Suppose that the Fed sells $450 million of government bonds.

In addition, suppose that the required reserve ratio is 39 percent and that banks do not hold any excess reserves.

What is the effect on the money supply? More precisely, by how much will the money supply change?

Hint

Question 5

Assume that the banking system has total reserves of $611 billion.

Assume also that required reserves are 47 percent and that banks do not hold any excess reserves and households hold no currency.

What is the money multiplier?

Hint

Question 6

Assume that the banking system has total reserves of $434 billion.

Assume also that required reserves are 31 percent and that banks do not hold any excess reserves and households hold no currency.

What is the size of the M1 money supply?

Hint

Question 7

Assume that the banking system has total reserves of $360 billion.

Assume also that required reserves are 15 percent and that banks do not hold any excess reserves and households hold no currency.

Now suppose that the Fed decreased the required reserves to 12.

What is the new multiplier?

Hint

Question 8

Assume that the banking system has total reserves of $528 billion.

Assume also that required reserves are 24 percent and that banks do not hold any excess reserves and households hold no currency.

Now suppose that the Fed decreases the required reserves to 19.2.

What is the level of excess reserves? Make sure to include a negative sign if necessary.

Hint

Question 9

Assume that the banking system has total reserves of $630 billion.

Assume also that required reserves are 30 percent and that banks do not hold any excess reserves and households hold no currency.

Now suppose that the Fed decreased the required reserves to 24.

As a result of this new policy, by how much has the money supply increased?

Hint

Question 10

Assume that the banking system has total reserves of $105 billion.

Assume also that required reserves are 7 percent and that banks do not hold any excess reserves and households hold no currency.

What is money multiplier?

Hint

Question 11

Assume that the banking system has total reserves of $225 billion.

Assume also that required reserves are 9 percent and that banks do not hold any excess reserves and households hold no currency.

What is the level of deposits?

Hint

Question 12

Assume that the banking system has total reserves of $1316 billion.

Assume also that required reserves are 47 percent and that banks do not hold any excess reserves and households hold no currency.

Now suppose that the Fed increased the required reserves to 56.4.

What is the new multiplier?

Hint

Question 13

Assume that the banking system has total reserves of $1323 billion.

Assume also that required reserves are 49 percent and that banks do not hold any excess reserves and households hold no currency.

Now suppose that the Fed increased the required reserves to 58.8.

What is the level of excess reserves? Make sure to include a negative sign if necessary.

Hint

Question 14

Assume that the banking system has total reserves of $407 billion.

Assume also that required reserves are 37 percent and that banks do not hold any excess reserves and households hold no currency.

Now suppose that the Fed increased the required reserves to 44.4.

As a result of this new policy, by how much has the money supply changed?

Hint