NC STATE Courses 2017-2018 Question 8 Assume that the reserve requirement is 10

Question

NC STATE Courses 2017-2018 Question 8 Assume that the reserve requirement is 10 percent. If someone deposits in a bank $2,000 that she had been hiding in her cookie jar, the largest possible increase in the money supply is Points aut of Select one Pag A $0 B. $1,800 D. S20.000 Oestion 9 The money supply increases if Select one: A househoids decide to hold relatively less currency and relatively more deposits and banks decide to hoid relatively more excess reserves and make fewer loans. B. households decide to hold reletively more currency and relatively fewer relatively fower excess reserves and make more loans and banks decide to hold C households decide to hold relatively more currency and relatively fewer deposits and banks deOde to hold relatively more xcess reserves and make fewer loans D. households decide to hold relatively less currency and relatively more depesits and banks decide to hold rolatve y less ecess resenes make more loans. Queston 10 One reason thet the Fed's conarol of the money supply is not precise is becase 20 a 2 3

Explanation / Answer

1. Assume that the reserve requirment is 10 percent. If someone deposits in a bank $2000 that she had been hiding in her cookie jar, the largest possible increase in the money supply is

B) $1800

Explanation ; -

Reserve requirement is 10% which will be 200 = 2000*10/100
so the amount from the deposits will deducted which is reserve = 2000-200 = 1800
So, $1800 will be maximum increase in money supply.

2. The money supply increases if

D) households decide to hold relatively less currency and relatively more deposits and banks decide to hold relatively less excess reserves and make more loans

Explanation :-

When households hold less currency and more deposits the flow of currency in the market is more and the banks also decide to hold less reserves and make more loans, when more loans are floated in the market then money in the market increases thereby increasing the money supply.

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