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Question 1

Suppose that the required reserve ratio (R) is 13 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 35 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 $500 million of government bonds.

In addition, suppose that the required reserve ratio (R) is 40 percent and that banks do not hold any excess reserves.

What is money multiplier?

Hint

Question 4

Suppose that the Fed sells $280 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 $585 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 $120 billion.

Assume also that required reserves are 8 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 6.4.

What is the new multiplier?

Hint

Question 7

Assume that the banking system has total reserves of $299 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 decreases the required reserves to 18.4.

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 $270 billion.

Assume also that required reserves are 10 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 8.

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 $342 billion.

Assume also that required reserves are 18 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 $728 billion.

Assume also that required reserves are 26 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 31.2.

What is the new multiplier?

Hint

Question 11

Assume that the banking system has total reserves of $1008 billion.

Assume also that required reserves are 48 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 57.6.

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 $990 billion.

Assume also that required reserves are 45 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 54.

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

Hint