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Question 1

Suppose that the required reserve ratio (R) is 45 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 $270 million open market purchase 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 increase?

Hint

Question 3

Suppose that the Fed sell $400 million of government bonds.

In addition, suppose that the required reserve ratio (R) is 27 percent and that banks do not hold any excess reserves.

What is money multiplier?

Hint

Question 4

Suppose that the Fed sells $300 million of government bonds.

In addition, suppose that the required reserve ratio is 43 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 $484 billion.

Assume also that required reserves are 22 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 $551 billion.

Assume also that required reserves are 19 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 $868 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.

What is the new multiplier?

Hint

Question 8

Assume that the banking system has total reserves of $1222 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 decreases the required reserves to 37.6.

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 $1078 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.

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 $988 billion.

Assume also that required reserves are 38 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 $816 billion.

Assume also that required reserves are 34 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 $378 billion.

Assume also that required reserves are 14 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 16.8.

What is the new multiplier?

Hint

Question 13

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.

Now suppose that the Fed increased the required reserves to 34.8.

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 $451 billion.

Assume also that required reserves are 41 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 49.2.

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

Hint