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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 $470 million open market purchase of government bonds.

In addition, suppose that the required reserve ratio is 8 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 $180 million of government bonds.

In addition, suppose that the required reserve ratio (R) is 12 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 17 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 $720 billion.

Assume also that required reserves are 48 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 $722 billion.

Assume also that required reserves are 38 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 30.4.

What is the new multiplier?

Hint

Question 7

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 decreases the required reserves to 39.2.

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 $532 billion.

Assume also that required reserves are 28 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 22.4.

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 $384 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 10

Assume that the banking system has total reserves of $624 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 new multiplier?

Hint

Question 11

Assume that the banking system has total reserves of $252 billion.

Assume also that required reserves are 12 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 14.4.

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 $338 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.

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

Hint