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Question 1

Suppose that the required reserve ratio (R) is 47 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 $230 million open market purchase of government bonds.

In addition, suppose that the required reserve ratio is 40 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 $410 million of government bonds.

In addition, suppose that the required reserve ratio (R) is 15 percent and that banks do not hold any excess reserves.

What is money multiplier?

Hint

Question 4

Suppose that the Fed sells $380 million of government bonds.

In addition, suppose that the required reserve ratio is 26 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 $897 billion.

Assume also that required reserves are 39 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 $154 billion.

Assume also that required reserves are 11 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 $539 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 decreased the required reserves to 39.2.

What is the new multiplier?

Hint

Question 8

Assume that the banking system has total reserves of $880 billion.

Assume also that required reserves are 44 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 35.2.

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 $864 billion.

Assume also that required reserves are 48 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 38.4.

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 $725 billion.

Assume also that required reserves are 25 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 $841 billion.

Assume also that required reserves are 29 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 $260 billion.

Assume also that required reserves are 13 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 15.6.

What is the new multiplier?

Hint

Question 13

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

Assume also that required reserves are 42 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 50.4.

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 $432 billion.

Assume also that required reserves are 36 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 43.2.

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

Hint