1. If the required reserve ratio is 10% and the Fed conducts an open market purc
ID: 1158618 • Letter: 1
Question
1. If the required reserve ratio is 10% and the Fed conducts an open market purchase of $100, what is the maximum possible change in the money supply?
100, 1,000, 10,000 or 10
2. Suppose the Federal Reserve buys $50 million in Treasury bills from commercial banks. If the reserve ratio is 10%, the monetary supply might eventually _____ by _____
increase: 500, increase 450, decrease: 450, decrease: 500
3. Suppose your grandma sends you $100 for your birthday and you deposit it in your checking account. The reserve ratio is 10%. Based upon this deposit, the bank's reserves have increased by _____ and the bank's checkable deposits have increased by _____
$100: $100, $100: $90, $90: $100, or $10: $100
4. First National Bank has $80 million in checkable deposits, $15 million in deposits with the Federal Reserve, $5 million cash in the bank vault, and $5 million in government bonds. The bank has liabilities of
105 million, 95 million, 80 million, or 100 million
5. The reserve requirement is 10% and Jack withdraws $5,000 travel money from his checkable deposit. Assume that banks do hold excess reserves but the public holds no currency, only checkable bank deposits. As a result of the withdrawal, excess reserves _____ by _____.
increase: 5,000, increase: 500, decrease: 4,500, decrease: 500
6. Suppose a bank gets a new deposit of $100 cash and it has a 20% required reserve ratio. If the bank lends the maximum amount of money allowed, then the checkable deposits (including the original deposit) increase by
20, 100, 500 or 1,000
Explanation / Answer
Ans
1 multiplier is 1/10%=10 So maximum=100(10)=1000
2 increase by 50(10)=500. When fed buys securities it increases money supply
3 100(10%)=10 and deposits increase by 100
4 80 million which are Demand deposits
5 decrease by 5000(10%)=500
6 deposit multiplier =1/20%=5.so increase by 5(100)=500
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.