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Question 1

Suppose that the required reserve ratio (R) is 9 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 $400 million open market purchase of government bonds.

In addition, suppose that the required reserve ratio is 37 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 $220 million of government bonds.

In addition, suppose that the required reserve ratio (R) is 32 percent and that banks do not hold any excess reserves.

What is money multiplier?

Hint

Question 4

Suppose that the Fed sells $170 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 $900 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 size of the M1 money supply?

Hint

Question 6

Assume that the banking system has total reserves of $108 billion.

Assume also that required reserves are 9 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 7.2.

What is the new multiplier?

Hint

Question 7

Assume that the banking system has total reserves of $672 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 decreases the required reserves to 25.6.

What is the level of excess reserves? Make sure to include a negative sign if necessary.

Hint

Question 8

Assume that the banking system has total reserves of $460 billion.

Assume also that required reserves are 23 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 18.4.

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

Hint

Question 9

Assume that the banking system has total reserves of $144 billion.

Assume also that required reserves are 12 percent and that banks do not hold any excess reserves and households hold no currency.

What is the level of deposits?

Hint

Question 10

Assume that the banking system has total reserves of $1025 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.

What is the new multiplier?

Hint

Question 11

Assume that the banking system has total reserves of $496 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 increased the required reserves to 37.2.

What is the level of excess reserves? Make sure to include a negative sign if necessary.

Hint

Question 12

Assume that the banking system has total reserves of $680 billion.

Assume also that required reserves are 40 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 48.

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

Hint