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Question 1

Suppose that the required reserve ratio (R) is 18 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 $370 million open market purchase of government bonds.

In addition, suppose that the required reserve ratio is 34 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 $230 million of government bonds.

In addition, suppose that the required reserve ratio (R) is 5 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 41 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 $517 billion.

Assume also that required reserves are 47 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 $850 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 $1189 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 decreased the required reserves to 32.8.

What is the new multiplier?

Hint

Question 8

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 decreases the required reserves to 12.8.

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 $272 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 decreased the required reserves to 13.6.

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 $385 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 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 $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 $66 billion.

Assume also that required reserves are 6 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 7.2.

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 $528 billion.

Assume also that required reserves are 24 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 28.8.

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

Hint