If the required reserve ratio is 8%, the excess reserve ratio is 2%, and the currency-deposit ratio is 30%, by how much would money supply change if the central bank made open market sales valued at $40 million ?

If the required reserve ratio is 8%, the excess reserve ratio is 2%, and the currency-deposit ratio is 30%, by how much would money supply change if the central bank made open market sales valued at $40 million ?

Economics (MindTap Course List)

13th Edition

ISBN:9781337617383

Author:Roger A. Arnold

Publisher:Roger A. Arnold

Chapter13: The Federal Reserve System

Section: Chapter Questions

Problem 5WNG

See similar textbooks

Related questions

Q: Economists have several ways of defining what they mean by the "supply of money." Which of the…

A: So as per the economics money supply which is operating is known to be as the exact total value of…

Q: What is the effect of the following on the money supply: a. Increase in currency- deposit ratio,…

A: For answering this one need to know about CDR(Currency Deposite Ratio) and Reserve Deposite Ratio.…

Q: Increasing the reserve-deposit ratio will Increase the money supply by icnreasing the money…

A: The reserve ratio is the percentage of reservable liabilities that commercial banks must keep…

Q: Suppose the required reserve ratio is 20%. What is the maximum amount of total money supply that can…

Q: Assume the required reserve ratio is 10%. Suppose that currency in circulation is $600 billion, the…

A: Money supply depends on the reserve ratio , if the reserve ratio is more money supply is less and…

Q: Could each of the following items potentially serve as money? Consider each as a medium of exchange,…

A: Money is used as the currency for buying goods and services. Money replaced the barter system.

Q: his question asks you to work through an open-market sale of $7,000 in securities to Bank 1. The…

A: Open market operations means selling or buying of government securities that would result in a…

Q: In the fractional reserve banking system, if the required reserve ratio is 5%, then an initial…

A: Fractional reserve banking system: - In a fractional reserve banking system, the banks have to keep…

Q: If a depositor withdraws currency from abank, that bank's total reserves increase True False

A: If a depositor withdraws currency from a bank, that bank's total reserves increase True False

Q: Suppose that the required reserve ratio is 4.004.00%. What is the simple money (deposit) multiplier?…

A: The reserve ratio is a portion of the reserved liabilities that the banks have to keep with them…

Q: Calculate the value of M1 if currency with public is $84000 million , demand deposits is $68000…

A: The given information is as follows:- Currency with public = $84,000 million Demand deposit =…

Q: How does covid-19 affect the money supply in the Philippines?

A: The pandemic COVID-19 have affected every part of the world with severe damage of human life and…

Q: You just earned $25.000 which you deposit it in a bank account, How much can fractional-reserve…

A: Credit creation refers to the expanision of deposits, bank can use credit creation to increase the…

Q: What is the maximum amount of money created from a $3 million deposit in the banking system if the…

A: Required reserve ratio is the percentage of total reserves that banks need to hold as required…

Q: If the currency-deposit ratio equals 0.33 and the reserve-deposit ratio equals 0.15, then the money…

A: Since you have asked ,multiple questions, we will answer the first question for you. If you require…

Q: Which of the following is true (M = Money supply, cu = currency - deposit ratio, res = reserve -…

A: The money multiplier formula is given by: (1+cu)/(cu+res)

Q: If the required reserve ratio is 5%, an initial demand deposit made in a bank of $100,000 can result…

A: The correct alternative for the aforementioned question is B.

Q: If the required reserve ratio is 0.10, excess-to-deposit ratio is 0.3, and the money multiplier is…

Q: 3 Which of the following statements is /are incorrect in explaining the difference between M1, M2,…

A: In an economy, the measurement of the money supply is M1, M2, and M3. These are also known as money…

Q: If the reserve requirement is 25%, then a $1 increase in deposits means that the money supply:…

A: Money supply can be calculated as follows:

Q: If bank reserves are 200, the public holds 400 in currency, and the desired reserve- deposit ratio…

A: Reserves refer to the portion of deposits that banks are mandated to keep aside for meeting…

Q: In an economy, the M2 measure of money supply is $88,000 and M1 is $66,000 We have to calculate…

A: The information being given is:- M2 = $88,000 M1 = $66,000 Saving deposit with post office Savings…

Q: In an economy with commercial banks with the required ratio of the reserve to deposit of 0.2, an…

A: Total units generated = Initial deposit * Money multiplier

Q: Assuming initially that the required reserve ratio = 15%, the currency-deposit ratio = 40%, and the…

Q: The net time deposit with banks is $400 million and the M1 component of money supply is $870 million…

A: M3 is a measure of money supply that includes time deposits , money market funds and liquid assets…

Q: If the currency deposit ratio is 20 percent, the reserve ratio rr is 20 percent and each bank loans…

A: The money multiplier shows the proportionate change in the money supply when the deposits or the…

Q: If the desired reserve/deposit ratio equals 0.25, then every dollar of currency in the money supply,…

A: Reserve deposit ratio is the percentage of deposits which commercial banks are required to keep as…

Q: In an economy where the cash holding rate is zero, how much money is created against the TL 1,000…

A: Given Reserve Requirement = 0.2 Increase in deposit = 1000

Q: You are given the following information: Bank deposits (D) 350 Currency-to-deposits ratio (c) 0.20…

A: (Since you have asked many questions, we will solve the first one for you. If you want any specific…

Q: The transactions demand for money which arises from the medium of exchange function of money.

A: Demand for money arises from the medium of exchange and supply of value functions because people…

Q: Ms Lee deposited cash amounting RM5,000 in her Islamic term investment account. Demonstrate how will…

A: M1 is a measure of money supply which comprises of the money that is in circulation in the economy…

Q: Compute the impact on the money multiplier of currency-to-deposit ratio from an increase in the…

A: Money multiplier is negatively associated with Currency deposit ratio. Rise in the currency deposit…

Q: what are the changes in deposits, currency holdings and money stock for an open market sale of…

A: We need to find out the impact of an open market sale of $1,00,000 on Deposits Currency holdings…

Q: reserve requirement is 25%, then a $500 increase in deposits means that the money supply

A: Deposit multiplier or money multiplier = 1/ CRR = 1/ 25% = 100/25 = 4 So deposits will increase by…

Q: ou are given the following information: Bank deposits (D) 350 Currency-to-deposits ratio (c) 0.20…

Q: If the actual reserve ratio is 16%, what is the money multiplier? Include up to two decimal places,…

A: Given Reserve Ratio = 16% Reserve Ratio = 0.16 We know that, Money Multiplier = 1 / (Reserve Ratio)…

Q: In April 2020, the BOJ plans to set the Required Reserve Ratio (RRR) at 20%. By how much will the…

A: The deposit requirements are the amount of money that the bank withholds to ensure that it can meet…

Q: Calculate the legal reserve requirement if initial deposit of $300 million lead to creation of total…

A: The information given is as follows:- Initial deposits = $300 million Total deposit = $1800 million…

Q: “Whenever currency is deposited in a commercial bank, cash goes out of circulation and, as a result,…

A: The money supply in the economy of a nation on the date calculated is both the currency and other…

Q: In 2019 the total amount of currency in circulation was C = $1,745.10 billion. Demand deposits in…

A: The medium of exchange that is being used for carrying out business transactions and accepted widely…

Q: If C represents the currency-deposit ratio and r the reserve deposit ratio specified by the central…

A: Money multiplier is given as the ratio of total money supply to that of high powered money. m= M/H…

Q: The money multiplier is 2.3 and the currency drain ratio is 0.4. What is the desired reserve ratio?…

A: The Reserve ratio is the minimum percentage of money that the central bank sets for the commercial…

Question

If the required reserve ratio is 8%, the excess reserve ratio is 2%, and the
currency-deposit ratio is 30%, by how much would money supply change if the central bank made open market sales valued at $40 million ?

Definition Definition Minimum amount that a commercial bank must hold in liquid assets in order to fulfill central bank regulations.

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

This is a popular solution!

SEE SOLUTION Check out a sample Q&A here

Step 1

VIEW

Step 2

VIEW

Trending now

This is a popular solution!

Step by step

Solved in 2 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.

Similar questions

“Whenever currency is deposited in a commercial bank, cash goes out of circulation and, as a result, the supply of money is reduced.” Do you agree? Explain why or why not.
Suppose that the T-account for First California Bank is as follows. The required reserve ratio is 10%. Suppose that the Fed buys $20,000 securities from First California Bank. As a result of the Fed’s purchase of $20,000 securities from First California Bank, how much of money supply will change? Is the change in money supply an increase or a decrease?
An initial deposit of $10,000 at a ratio of 10% from currency in circulation, will lead to a maximum change in the composition of the money supply by?
If deposits in the banking system are $540, while the reserve ratio is 0.2 and the currency to deposit ratio is 0.09, then: a) Calculate the total demand for high powered money.
Explain how to use an open market operation to expand the money supply.
Suppose the monetary base is $500 million, the required reserve ratio is 12%, and the currency-deposit ratio is 30%. What would the excess reserve ratio need to be to produce $800 million in the money supply. Holding everything else constant, what effect would an increase in the excess reserve ratio have on the money supply?
If the required reserve ratio (RRR) in U.S. is 10 percent and you deposit $5,000, which is wired from your parents’ bank account in Germany to your checking account in the U.S. National Bank, then the change in the U.S. money supply eventually should be Group of answer choices a $45,000 increase. a $5,000 increase. no change. a $50,000 increase.
In an economy with commercial banks with the required ratio of the reserve to deposit of 0.2, an individual's initial deposit of 1000 units at a commercial bank will eventually generate..
Assuming a reserve requirement of 20%, if the central bank of a country injects an additional $10,000 in reserves into the banking system, how much new money can the banking system create?
Suppose that the required reserve ratio is equal to 10%. If the currency-to-deposit ratio is fixed at 20%, what is the money multiplier? If the monetary base is $100 million, what is the money supply?
Say that First Commercial Bank has reserves of $100, loans at $400 and checkable deposits of $500. The required reserve ratio is 10%. If the bank has a deposit outflow of $40, is the bank in violation of the required reserve ratio? What is the maximum amount of deposit outflow the bank can sustain without violating the ratio?
Assume that individuals do not hold currency. If the reserve ratio is equal to 5 per cent, then if the central bank wants to increase money supply in the economy by $100 million, the monetary base should be increased by: $5 million $20 million $50 million $100 million $500 million