Suppose again that checkable deposits started off at $300,000 in First Main Street Bank, the required reserve ratio is 10%, with no excess reserves and no cash leakage. First Main Street Bank takes the entire $3,000 in excess reserves that resulted from the open-market purchase by the Fed and creates a loan for Gilberto in a form of a new checkable deposit with a balance of $3,000. The money supply now is $_____.
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- Suppose again that checkable deposits started off at $400,000 in First Main Street Bank, the required reserve ratio is 15%, and no excess reserves and no cash leakage exist. You know from the previous step that, due to the sale of securities by the Fed, the money supply in the economy contracted from $400,000 to $392,000. But the contraction of the money supply does not stop with First Main Street Bank. It moves to other banks. The loan repayment that Charles made to First Main Street Bank was written on a check Second Republic Bank issued. Then, when the check cleared, the reserves of Second Republic Bank declined, and Second Republic Bank found itself reserve deficient as well. It applied loan repayments to its reserve deficiency position. The effect continued with other banks and so on. The initial removal of funds in the amount of $8,000 will cause the money supply to contract by $______. Therefore, the money supply is $______. (Hint: round the results of your calculations to the…QUESTION 2 Suppose that for every open-market operation in the amount of $1, money supply increases by $3, i.e., an open-market purchase of $1 will increase money supply by $3 and an open-market sale of $1 will reduce money supply by $3. This means that money multiplier is fixed and is equal to 3. The Fed's balance sheet is Federal Reserve Bank Assets Liabilities $ 900 Currency held by nonbank public Vault cash held by banks Reserve deposits Total liabilities Securities Gold $ 700 100 100 200 $1000 Total assets $1000 and the commercial banks' balance sheet is Consolidated Balance Sheet of Banks Assets Liabilities $ 100 Deposits $3000 Vault cash Reserve deposits 200 Loans 2700 Total assets $3000 Total liabilities $3000 If the Fed wants to increase money supply by 15%, then it has to buy government bonds in the amount of Note: Type in your answer rounded to two decimal places, i.e., your answer must be of the form "999.99". I will not be able to fix correct answers that were entered…Suppose again that checkable deposits started off as $400,000 in First Main Street Bank, the required reserve ratio (r) is 15%, with and there are no excess reserves and no cash leakage. Suppose the Fed buys $8,000 worth of government securities from First Main Street Bank. Complete the following table to reflect the Fed's purchase on the balance sheet for First Main Street Bank. Reserves Loans Assets Liabilities Checkable Deposits $400,000 Does First Main Street Bank have any excess reserves now? No; the bank has zero excess reserves. OYes; the bank has $1,200 in excess reserves. O Yes; the bank has $51,000 in excess reserves. Yes; the bank has $8,000 in excess reserves.
- Which volume of OMOS is required if banks expect to reduce their discount loans by $50 billion but desired changes of money supply is +$50 billion, so the Fed plans to reduce reserve ratio from 10% to 5% (current required reserves amount to $110 billion)? Use the concept of a money multiplier and currency ratio of 0.2, required reserves ratio of 0.07, excess reserves ratio of 0.03QUESTION 2 Suppose that for every open-market operation in the amount of $1, money supply increases by $3, i.e., an open-market purchase of $1 will increase money supply by $3 and an open-market sale of $1 will reduce money supply by $3. This means that money multiplier is fixed and is equal to 3. The Fed's balance sheet is Federal Reserve Bank Assets Liabilities Securities Gold $ 900 $ 700 Currency held by nonbank public Vault cash held by banks Reserve deposits 100 100 200 Total assets $1000 Total liabilities $1000 and the commercial banks' balance sheet is Consolidated Balance Sheet of Banks Assets Liabilities $3000 $ 100 200 Vault cash Deposits Reserve deposits Loans 2700 Total assets $3000 Total liabilities $3000 If the Fed wants to increase money supply by 15%, then it has to buy government bonds in the amount of Note: Type in your answer rounded to two decimal places, i.e., your answer must be of the form "999.99". I will not be able to fix correct answers that were entered…Money Multiplier: = D rr = required reserve ratio = 0.10 C = currency in circulation = $ 400 billion = checkable deposits = $800 billion 1 + c ER= excess reserve rr + e + c - $0.80 billion M = money supply (M1) = C + D = $1,200 c = currency ratio = C/D = $400/$800= 0.5 e excess reserve ratio = ER/D = $.80 b / $800 b Using the formula for the money multiplier above, derive is the Money Multiplier?
- a) Suppose that Tk.10,000 in new taka bills (never seen before) falls magically from the sky into your hands. What are the minimum increase and the maximum increase in the money supply that may result? Assume the required reserve ratio is 10 percent.b) Suppose you receive Tk. 10,000 from your grandmother and deposits the money in a saving account. your grandmother gave you the money by writing a check on her saving account. Would the maximum increase in the money supply still be what you found it to be in part a) where you received the money from the sky? Why or why not?c) Suppose that instead you getting Tk. 10,000 from the sky or a check through your grandmother, you get the money from your mother who had buried it in a can in her backyard. In this case, would the maximum increase in the money supply be what you found it to be in part a)? Why or why not?a) Suppose that Tk.10,000 in new taka bills (never seen before) falls magically from the sky into your hands. What are the minimum increase and the maximum increase in the money supply that may result? Assume the required reserve ratio is 10 percent.b) Suppose you receive Tk. 10,000 from your grandmother and deposits the money in a saving account. your grandmother gave you the money by writing a check on her saving account. Would the maximum increase in the money supply still be what you found it to be in part a) where you received the money from the sky? Why or why not? c) Suppose that instead you getting Tk. 10,000 from the sky or a check through your grandmother, you get the money from your mother who had buried it in a can in her backyard. In this case, would the maximum ncrease in the money supply be what you found it to be in part a)? Why or why not?During the financial crisis, banks excess reserves [beyond what is required by regulatory reserve requirements] exploded. If the Federal Reserve Bank of New York purchased $1 billion in U.S. Treasury Bills in this environment and the reserve requirement is 20%, then the change in the total money supply will be approximately: Group of answer choices an increase of a bit more than $1 billion. a decrease of a bit more than $1 billion. an increase of a bit less than $5 billion. a decrease of a bit less than $5 billion
- Suppose you found Rs. 2000 that was stored under your grandmother's mattress and you decided to deposit this money in a Bank of India. If the desired reserve ratio were 20 percent and all excess reserves were lent out. a) Calculate the money supply created by this deposition in the economy?b) Following a new deposit of Rs. 2000, what is the reserve requirement of the commercial bank?c) Suppose all the banks in the banking system collectively have Rs.20 million in cash reserves and have a desired reserve ratio of 20 percent, the maximum amount of demand deposits the banking system can support is?Assume the required reserve ratio is 10 percent. If the Federal Reserve buys $10 million in government securities from the public, then the money supply will immediately: Multiple Choice increase by $10 million, and the maximum money-lending potential of the commercial banking system will increase by $100 million. increase by $10 million, but the maximum money-lending potential of the commercial banking system will decrease by $10 million. decrease by $10 million, and the money-lending potential of the commercial banking system will decrease by $100 million increase by $10 million, and the maximum money-lending potential of the commercial banking system will increase by $10 million.Suppose again that checkable deposits started off as $200,000 in First Main Street Bank, the required reserve ratio (r) is 15%, with and there are no excess reserves and no cash leakage. Suppose the Fed buys $2,500 worth of government securities from First Main Street Bank. Complete the following table to reflect the Fed's purchase on the balance sheet for First Main Street Bank. Reserves Loans Assets TOTAL SCORP Liabilities Checkable Deposits Does First Main Street Bank have any excess reserves now? No; the bank has zero excess reserves. Yes; the bank has $25,500 in excess reserves. Yes; the bank has $375 in excess reserves. Yes; the bank has $2,500 in excess reserves. $200,000
