Question

Suppose that the central bank has increased the money supply such that there are an additional...

Suppose that the central bank has increased the money supply such that there are an additional $387425 in excess reserves. If the reserve ratio is 8.0 percent, what is the maximum the money supply could increase?

Business   Accounting   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

Answer:-

Data Given,

Additional Excess Reserve = $387425

Reserve ratio = 8% = 0.08

Here, We have to find the maximum money supply increased To do So, We will use the following formula:-

The maximum increase in money Supply = Additional excess Reserve * Money multiplier

Where,

Additional excess Reserve = $387425

Money multiplier = 1 / Reserve ratio(Reserve ratio is 8% = 0.08)

Money multiplier = 1 / 0.08

Money multiplier = 12.5

Substituting the Respective value in the formula:-

The maximum increase in money Supply = Additional excess Reserve * Money multiplier

The maximum increase in money Supply = $387425 * 12.5

The maximum increase in money Supply = $4,842,812.5

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Suppose the nation’s Central Bank (CB) decides to engineer an increase in the nation’s money supply,...
Suppose the nation’s Central Bank (CB) decides to engineer an increase in the nation’s money supply, and begins the process with an open market operation (OMO), in which the CB purchases 2000₺ worth of Treasury securities from Household j (HH j). HH j deposits the entire 2,000₺ in cash into a demand deposit account at Bank A. Thus, the initial increase in total bank reserves is 2,000 ₺ cash in the vault.The CB has set the reserve requirement ratio (rd)...
What are reserve requirements? What happens to the money supply when a central bank raises reserve...
What are reserve requirements? What happens to the money supply when a central bank raises reserve requirements? Why don’t banks hold 100 percent reserves? How is the amount of reserves banks hold related to the amount of money the banking system creates?
9.4 Suppose the central bank sets the reserve requirement ratio at 5 percent. The maximum the...
9.4 Suppose the central bank sets the reserve requirement ratio at 5 percent. The maximum the central bank is willing to lend is 25 percent of require reserves, charging the gross real return of 1 on discount window loans. We assume the gross real return on fiat money is 1.02 and the gross real return on capital is 1.08. A. What is the gross real return on deposits? B. If the supply of fiat money is $10,000, what is the...
Central Banks System Suppose a banking system with the following balance sheet has no excess reserves....
Central Banks System Suppose a banking system with the following balance sheet has no excess reserves. Assume that banks will make loans in the full amount of any excess reserves that they acquire and will immediately be able to eliminate loans from their portfolio to cover inadequate reserves. Assets Liabilities (in Billions) (in Billions) Tota reserves $150 Transactions accounts $500 Securities $150 Loans $200 Total $500   Total $500 You are required to answer the following Questions: 1) What is the...
1. How would a decrease in the reserve requirement affect the (a) size of the money...
1. How would a decrease in the reserve requirement affect the (a) size of the money multiplier, (b) amount of excess reserves in the banking system, and (c) extent to which the system could expand the money supply through the creation of checkable deposits via loans? 2. Suppose that Security Bank has excess reserves of $8,000 and checkable deposits of $150,000. If the reserve ratio is 20 percent, what is the size of the bank’s actual reserves? 3. The Third...
If the head of the central bank wants to expand the supply of money, which of...
If the head of the central bank wants to expand the supply of money, which of the following would do it? Explain how the policy impacts the money supply, and find the policies that might increase the money supply. 1. Increase the required reserve ratio 2. Decrease the required reserve ration 3. Increase the discount rate 4. Decrease the discount rate 5. Buy government securities in the open market 6. Sell government securities in the open market 7. (Review for...
State whether the following actions increase, decrease or do not change the money supply. (5 pts...
State whether the following actions increase, decrease or do not change the money supply. (5 pts each, Total : 25 pts): Central bank made an open market purchase of 1 Million TL. Central bank increased the required reserve ratio Central bank provided 1 Million TL worth of loans to the banking system. Banks decreased their excess reserves because the economy is in the expansion phase Agents increased their curreny holding due to a financial panic
2. Suppose a central bank has increased its nation’s nominal money supply considerably for several years...
2. Suppose a central bank has increased its nation’s nominal money supply considerably for several years in a row but without any increase in inflation. Over that same time, suppose its economy has not grown. Given this information, explain why this monetary policy has not yielded any results. Use the AD/AS model to aid in your answer and assume the economy is in a long-run equilibrium as your starting point. A good approach would be to compare what is supposed...
Answer the questions on the money multiplier based on the following information: Suppose that the required...
Answer the questions on the money multiplier based on the following information: Suppose that the required reserve ratio is 10%, currency in circulation is $600 billion, the amount of checkable deposits is $950 billion, and excess reserves is $20 billion. a) The money supply is ____________ billion. b) The currency deposit ratio is _____________. c) The excess reserves ratio is ____________. d) The money multiplier is ____________. e) Suppose the central bank conducts a large open market purchase of bonds...
Suppose that currency in circulation is $800 billion, the amount of checkable deposits is $1200 billion,...
Suppose that currency in circulation is $800 billion, the amount of checkable deposits is $1200 billion, the required reserve ratio is 10% and excess reserves are $12 billion. a. Calculate the money supply, the currency-to-deposit ratio, the excess reserve ratio, and the money multiplier. b. Suppose the central bank conducts an unusually large open market purchase of bonds held by banks of $2000 billion due to a sharp contraction in the economy. Assuming the ratios you calculated in part (a)...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT