Question

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 quantity of M1 in this economy?

Homework Answers

Answer #1

Answer:

1.Gross real returns on deposit is :1.02

Explanation:

●When a Investor deposits money into a bank account, the interest on the deposit is equal to the gross return.

●In the given case,Fiat Money which is usually deposited in the form of Demand Deposits in banks.

2.Quantity of M1 in the Economy

  Reserve requirement ratio is 5%

Lending ratio is 25% of require reserves

=10000 + 25%(10000×5%)

=10000 + 125

=10125

To be part of M1 ,It must includes with public which is people and banks

Here 25% is with public(people and banks) and hence firm part of m1

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Suppose that banks had deposits of $500 billion, a desired reserve ratio of 4 percent and...
Suppose that banks had deposits of $500 billion, a desired reserve ratio of 4 percent and no excess reserves. The banks had $15 billion in notes and coins. Calculate the banks’ reserves at the central bank.    A bank has $500 million in checkable deposits, $600 million in savings deposits, $400 million in small time deposits, $950 million in loans to businesses, $500 million in government securities, $20 million in currency, and $30 million in its reserve account at the...
Suppose that the bank sets a reserve requirement of 32, what is the monetary multiplier? Round...
Suppose that the bank sets a reserve requirement of 32, what is the monetary multiplier? Round your answer 2 decimal places. b. If a bank experiences a monetary multiplier of 17.0, has actual reserves of 26,000, and excess reserves of 25,000, what is the maximum amount of money creation that can be made?
BC Bank has $165M in deposits on its balance sheet. The current reserve ratio is 10%...
BC Bank has $165M in deposits on its balance sheet. The current reserve ratio is 10% of deposits. The bank has exactly enough reserves to meet the reserve requirement and it has zero excess reserves. Suppose that the Federal Reserve decreases the reserve ratio to 8% of deposits. The bank then loans out all of the excess reserves created by the Federal Reserve action. After the loans are made, all the funds are deposited back into the bank. After this...
suppose the reserve requirement os 5 percent, banks keep no excess reserves and the currency in...
suppose the reserve requirement os 5 percent, banks keep no excess reserves and the currency in the hands of the non-bank public does not change. a Suppose the central bank sells government securities to a commercial bank. will the money supply increase or decrease? why? b.Calculate the change in the money supply if the central sells $1000 worth of government securities to a commercial bank.
Assume that Deposits are 1000, the reserve requirement is 0.1. The bank currently has 500 in...
Assume that Deposits are 1000, the reserve requirement is 0.1. The bank currently has 500 in total reserves, and a desired excess reserve ratio of 0.05. Assume c=0. How many new loans can the bank issue? What will be the change in the Money Supply?
Suppose that the reserve requirement for checking deposits is 10 percent and that banks do not...
Suppose that the reserve requirement for checking deposits is 10 percent and that banks do not hold any excess reserves. If the Fed sells $4 million of government bonds, what is the effect on the economy’s reserves and money supply? Now suppose the Fed lowers the reserve requirement to 5 percent, but banks choose to hold another 5 percent of deposits as excess reserves. Why might banks do so? What is the overall change in the money multiplier and 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 reserve requirement for demand deposits is 10% what is the maximum change in the...
If the reserve requirement for demand deposits is 10% what is the maximum change in the money supply that the banking system can create if: a. the Federal Reserve/ Central Bank puts $1,000,000 of new reserves in the banking system b. $1,000,000 in cash is deposited in checking accounts c. Toyota borrows $1,000,000 from an insurance company
The required reserve ratio is 10 percent, a bank has checkable deposits of $200 million and...
The required reserve ratio is 10 percent, a bank has checkable deposits of $200 million and excess reserves of $100 million. Assuming the bank is meeting its reserve requirement, what amount is the bank holding in reserves?
6. Suppose the reserve requirement rate (rr) is 0.2, the quantity of money (M1) is 100...
6. Suppose the reserve requirement rate (rr) is 0.2, the quantity of money (M1) is 100 billion euros and there is no currency in circulation. Suppose the Central Bank provides an additional 1 billion of reserves to banks. Describe how the quantity of M1 would change and compute the new quantity of M1.
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT