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Use the following data to answer the below question. Required reserve​ $50 Checkable deposits​ $500 Savings...

Use the following data to answer the below question.

Required reserve​ $50

Checkable deposits​ $500

Savings Deposits​ $50

Excess reserves​ $180

Currency held by the public​ $160

The money multiplier is 1.69

The Fed conducts an open market purchase of $70.

What will be the change in the money supply? (Round to 2 decimal​ places/)

What is the change in checkable​ deposits?  (​/Round to 2 decimal​ places/)

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Homework Answers

Answer #1

Answer (1):- Change in money supply = change in reserve × money multiplier

= Money multiplier = 1 / reserve ratio

= 1.69 = 1 / reserve ratio

= Reserve ratio = 0.59

= Required reserve = $50

= Excess reserve = $180

= Total reserve = 550 × 0.59

= Total reserve = 324.5

Change in reserve = Total reserve - ( Excess reserve + required reserve)

Change in reserve = 324.5 - ( 180 + 50 )

Change in reserve = 94.5

Hence, change in money supply = 94.5 × 1.69

Change in money supply = 159.70

(2):- Change in Checkable deposit = Excess reserve × reserve ratio

Change in Checkable deposit = 180 × 0.59

Change in Checkable deposit = 106.2

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