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https//newconnect.mheducation.com/flow/connect.htm omework Saved Help Save & Exit Sub Check my worl Refer to the table below and assume that the Fed's reserve ratio is 10 percent and the economy is in a severe recession. Also suppose that the commercial banks are hoarding all excess reserves (not lending them out) because of their fear of loan defaults. Finally suppose that the Fed is highly concerned that the banks will suddenly lend out these excess reserves and possibly contribute to inflation once the economy begins to recover and confidence is restored ActualRequired Excess Money-Creating Potential of Money-Creating Potential 55,000 5.000 5,000 5 000 Reserve Ratio checkable Deposits 520,000 20,000 20.000 20 000 Reserves Reserves Reserves 52.000 4 000 5,000 6.000 (1) 10 (2) 20 (3) 25 (4) 30 Single Bank. 5) S3 000 1.000 of Banking System $30.000 5,000 $3,000 1.000 1000 1.000 a By how many percentage points would the Fed need to increase the reserve rätio to eliminate one-third of the excess teserves? r 26 Next >Explanation / Answer
The Fed need to increase the reserve ratio by 10 percentage points (From 10 to 20)
(According to table, we see that when the reserve ratio is 10%, the excess reserves is $3,000. When it is raised to 20%, it is reduced to $1,000, which implies that excess reserves is reduced by one-third).
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