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Question 1

Suppose that the required reserve ratio (R) is 39 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 $300 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 $330 million of government bonds.

In addition, suppose that the required reserve ratio (R) is 19 percent and that banks do not hold any excess reserves.

What is money multiplier?

Hint

Question 4

Suppose that the Fed sells $100 million 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 change?

Hint

Question 5

Assume that the banking system has total reserves of $551 billion.

Assume also that required reserves are 19 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 $130 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 $925 billion.

Assume also that required reserves are 37 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 29.6.

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 $494 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.

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 $616 billion.

Assume also that required reserves are 28 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 $500 billion.

Assume also that required reserves are 20 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 24.

What is the new multiplier?

Hint

Question 11

Assume that the banking system has total reserves of $1118 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 increased the required reserves to 51.6.

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 $598 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 increased the required reserves to 27.6.

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

Hint