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Question 1

Suppose that the required reserve ratio (R) is 24 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 $110 million open market purchase of government bonds.

In addition, suppose that the required reserve ratio is 10 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 $290 million of government bonds.

In addition, suppose that the required reserve ratio (R) is 21 percent and that banks do not hold any excess reserves.

What is money multiplier?

Hint

Question 4

Suppose that the Fed sells $350 million of government bonds.

In addition, suppose that the required reserve ratio is 29 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 $740 billion.

Assume also that required reserves are 37 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 $840 billion.

Assume also that required reserves are 35 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 $1400 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 decreased the required reserves to 40.

What is the new multiplier?

Hint

Question 8

Assume that the banking system has total reserves of $442 billion.

Assume also that required reserves are 17 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 13.6.

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 $420 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.

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 $1110 billion.

Assume also that required reserves are 37 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 $925 billion.

Assume also that required reserves are 37 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 $325 billion.

Assume also that required reserves are 25 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 30.

What is the new multiplier?

Hint

Question 13

Assume that the banking system has total reserves of $980 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 $516 billion.

Assume also that required reserves are 43 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 51.6.

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

Hint