Reference no: EM13183473

1. Suppose the required reserve ratio were 8 percent of checkable deposits, and the simple deposit multiplier applied. Using negatives to represent a decrease, if the Fed bought $480 of Treasury securities from a bank, the result would be a $________ increase in reserves, a $______ increase in excess reserves, and a $________ increase in checkable deposits. (Your answer should be for the entire banking system.)

2. Consider an economy with the following quantities:

i. C = currency in circulation

ii. D = checkable deposits

iii. c = C/D = currency-deposit ratio = 0.5

iv. ER = excess reserves

v. e = ER/D = excess reserves-deposit ratio = 0.02

vi. RR = required reserves = $200

vii. r = required reserve ratio = 0.08

viii. M = money supply (M1)

ix. R = total reserves

x. MB = monetary base

xi. m = (M1) money multiplier

a.  What are deposits, D?

b.  Using your answer to part (a), find excess reserves, ER, and currency, C.

c. What is the monetary base, MB?

d.  Using your answer to parts (a) and (b), find M.

e.  Using e, r and c, find m.

f. Without using e, r and c, find m again.

2. (Mishkin, 2007 edition, question 17.14.) If the economy starts to boom and loan demand picks up, what do you predict will happen to the money supply?

3. For each of the following events, answer the following: (1) How would this event affect the money supply? (2) What sort of defensive open market operation would the Fed undertake in response?

a.  Mardi Gras celebrations lead people to carry more cash.

b.  In late April, the Treasury deposits its newly-collected tax revenues at the Federal Reserve.

4. Find M1 and the monetary base MB data for the week ended October 31, 2013 (or most recent), available from the Board of Governors of the Federal Reserve System. This data can be found on the Board's web site, under separate releases: please use not seasonally adjusted data. What is the M1 money multiplier?