Money and banking HW 4

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The equation that shows the amount of the monetary base needed to support existing levels of checkable deposits, excess reserves, and currency is

MB = (rr × D) + ER + C.

BR = MB - MBn.

The relationship between borrowed reserves, the nonborrowed monetary base, and the monetary base is

An increase in the monetary base that goes into ________ is not multiplied, while an increase that goes into ________ is multiplied.

currency; deposits

The effect of an open market purchase on reserves differs depending on how the seller of the bonds keeps the proceeds. If the proceeds are kept in ________, the open market purchase has no effect on reserves; if the proceeds are kept as ________, reserves increase by the amount of the open market purchase

currency; deposits

Suppose that from a new checkable deposit, First National Bank holds two million dollars in vault cash, eight million dollars on deposit with the Federal Reserve, and one million dollars in required reserves. Given this information, we can say First National Bank has ________ million dollars in excess reserves.

nine

There are two ways in which the Fed can provide additional reserves to the banking system: it can ________ government bonds or it can ________ discount loans to commercial banks.

purchase; extend

A bank has excess reserves of $6,000 and demand deposit liabilities of $100,000 when the required reserve ratio is 20 percent. If the reserve ratio is raised to 25 percent, the bank's excess reserves will be

$1,000.

If the required reserve ratio is 10 percent, currency in circulation is $400 billion, checkable deposits are $800 billion, and excess reserves total $0.8 billion, then the money supply is ________ billion

$1200

If a bank has excess reserves of $20,000 and demand deposit liabilities of $80,000, and if the reserve requirement is 20 percent, then the bank has total reserves of

$36,000.

If the required reserve ratio is one-third, currency in circulation is $300 billion, and checkable deposits are $900 billion, then the currency ratio is

0.33.

When a member of the nonbank public withdraws currency from her bank account,

bank reserves fall, but the monetary base remains unchanged.

When a member of the nonbank public deposits currency into her bank account,

bank reserves rise, but the monetary base remains unchanged.

All else the same, when the Fed calls in a $100 discount loan previously extended to the First National Bank, reserves in the banking system

decrease by $100.

Assuming initially that rr = 15%, c = 40%, and e = 5%, a decrease in e to 0% causes the M1 money multiplier to ________, everything else held constant.

decrease from 2.55 to 2.33

Everything else held constant, an increase in the required reserve ratio on checkable deposits causes the M1 money multiplier to ________ and the money supply to ________.

decrease; decrease

When the Federal Reserve sells a government bond to a bank, reserves in the banking system ________ and the monetary base ________, everything else held constant.

decrease; decreases

Suppose a person cashes his payroll check and holds all the funds in the form of currency. Everything else held constant, total reserves in the banking system ________ and the monetary base ________.

decrease; remains unchanged

The interest rate the Fed charges banks borrowing from the Fed is the

discount rate.

When an individual sells a $100 bond to the Fed, she may either deposit the check she receives or cash it for currency. In both cases

high-powered money increases.

Assuming initially that rr = 10%, c = 40%, and e = 0, an increase in rr to 15% causes the M1 money multiplier to ________, everything else held constant.

increase from 2.55 to 2.8

When the Federal Reserve purchases a government bond from a bank, reserves in the banking system ________ and the monetary base ________, everything else held constant

increase; increases

If the Fed injects reserves into the banking system and they are held as excess reserves, then the monetary base ________ and the money supply ________.

increases; remains unchanged

The monetary base minus currency in circulation equals

reserves

In the model of the money supply process, the bank's role in influencing the money supply process is represented by

the excess reserve.

Total reserves minus bank deposits with the Fed equals

vault cash.

The formula for the simple deposit multiplier can be expressed as

△D =1/rr × △R


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