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Question 1

Suppose that the required reserve ratio (R) is 41 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 $440 million open market purchase of government bonds.

In addition, suppose that the required reserve ratio is 22 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 7 percent and that banks do not hold any excess reserves.

What is money multiplier?

Hint

Question 4

Suppose that the Fed sells $130 million of government bonds.

In addition, suppose that the required reserve ratio is 36 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 $435 billion.

Assume also that required reserves are 15 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 $150 billion.

Assume also that required reserves are 5 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 4.

What is the new multiplier?

Hint

Question 7

Assume that the banking system has total reserves of $483 billion.

Assume also that required reserves are 21 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 16.8.

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 $860 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 decreased the required reserves to 34.4.

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 $810 billion.

Assume also that required reserves are 30 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 $525 billion.

Assume also that required reserves are 21 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 25.2.

What is the new multiplier?

Hint

Question 11

Assume that the banking system has total reserves of $352 billion.

Assume also that required reserves are 22 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 26.4.

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 $792 billion.

Assume also that required reserves are 44 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 52.8.

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

Hint