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Question 1

Suppose that the required reserve ratio (R) is 10 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 $100 million open market purchase 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 increase?

Hint

Question 3

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

In addition, suppose that the required reserve ratio (R) is 41 percent and that banks do not hold any excess reserves.

What is money multiplier?

Hint

Question 4

Suppose that the Fed sells $110 million of government bonds.

In addition, suppose that the required reserve ratio is 50 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 $1035 billion.

Assume also that required reserves are 45 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 $884 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 size of the M1 money supply?

Hint

Question 7

Assume that the banking system has total reserves of $832 billion.

Assume also that required reserves are 32 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 25.6.

What is the new multiplier?

Hint

Question 8

Assume that the banking system has total reserves of $972 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 decreases the required reserves to 28.8.

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 $110 billion.

Assume also that required reserves are 5 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 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 $312 billion.

Assume also that required reserves are 24 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 $416 billion.

Assume also that required reserves are 32 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 $1015 billion.

Assume also that required reserves are 35 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 42.

What is the new multiplier?

Hint

Question 13

Assume that the banking system has total reserves of $416 billion.

Assume also that required reserves are 16 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 19.2.

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 $950 billion.

Assume also that required reserves are 50 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 60.

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

Hint