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Question 1

Suppose that the required reserve ratio (R) is 20 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 $240 million open market purchase of government bonds.

In addition, suppose that the required reserve ratio is 7 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 $130 million of government bonds.

In addition, suppose that the required reserve ratio (R) is 6 percent and that banks do not hold any excess reserves.

What is money multiplier?

Hint

Question 4

Suppose that the Fed sells $310 million of government bonds.

In addition, suppose that the required reserve ratio is 19 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 $165 billion.

Assume also that required reserves are 15 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 $144 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 size of the M1 money supply?

Hint

Question 7

Assume that the banking system has total reserves of $624 billion.

Assume also that required reserves are 26 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 20.8.

What is the new multiplier?

Hint

Question 8

Assume that the banking system has total reserves of $1218 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 decreases the required reserves to 33.6.

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 $930 billion.

Assume also that required reserves are 31 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 24.8.

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 $464 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 money multiplier?

Hint

Question 11

Assume that the banking system has total reserves of $174 billion.

Assume also that required reserves are 6 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 $286 billion.

Assume also that required reserves are 11 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 13.2.

What is the new multiplier?

Hint

Question 13

Assume that the banking system has total reserves of $735 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 $406 billion.

Assume also that required reserves are 29 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 34.8.

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

Hint