Calculate the money supply and the money multiplier

Assignment Help Other Subject

Reference no: EM132599930

Question: 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) remain the same, predict the effect on the money supply.

c. Suppose the central bank conducts the same open market purchase as in part (b), except that banks choose to hold all of these proceeds as excess reserves rather than loan them out, due to fear of a financial crisis and bank run. Assuming that currency and deposits remain the same, what happens to the amount of excess reserves, the excess reserve ratio, the money supply, and the money multiplier?

d. Go to the FRED web site and graph the Fed's M1 multiplier. How does the scenario in part c relate to the graph you created? Include your graph in your submission.

Reference no: EM132599930

Questions Cloud

Respect to the surface normal in the water : 500 nm light incident from air (nairoilwatero = 1.00) strikes a thin film of oil (n = 1.47) floating on water (n = 1.33).

Which is not a required disclosure with respect to liability : Which is NOT a required disclosure with respect to liabilities? payment terms for trade accounts payable./ details of assets pledged as collateral

What is the average intensity of the wave : A 575 nm wavelength electromagnetic wave has a maximum magnetic field of 3.6x10^-7T. What is the average intensity of the wave?

Residual effects of victimization : What are two of the residual effects of victimization? The criminal justice system has responded to these residual effects with reporting assistance.

Calculate the money supply and the money multiplier : Calculate the money supply, the currency-to-deposit ratio, the excess reserve ratio, and the money multiplier. Suppose the central bank conducts an unusually.

What the present value of the note should preferably be : When a note payable is issued for property, goods, or services, the present value of the note should preferably be measured by?

How the intervention changes the outcome of the market : Share a story or a link to a news article describing a government intervention in a market. Explain how the intervention changes the outcome of the market.

What does the term non-controlling interest mean : What does the term "non-controlling" interest mean? How is the non-controlling interest in a subsidiary company calculated as of the end of a reporting period

What is the eye plate scale in arcsec mm : What is the eye's plate scale in arcsec/mm? Note: The diameter of the Moon is 3,475 km. Show your work.

User Account

All Pages