Which volume of OMOs is required to keep money supply unchanged, if demand for borrowed reserves increases by $0.5 trillion and the central bank decreases required reserves ratio from 10 to 7% (the volume of required reserves created by the banking system was 1.5 trillion)? Use the concept of a money multiplier and currency ratio of 0.2 and excess reserves ratio of 0.03.

Which volume of OMOs is required to keep money supply unchanged, if demand for borrowed reserves increases by $0.5 trillion and the central bank decreases required reserves ratio from 10 to 7% (the volume of required reserves created by the banking system was 1.5 trillion)? Use the concept of a money multiplier and currency ratio of 0.2 and excess reserves ratio of 0.03.

Exploring Economics

8th Edition

ISBN:9781544336329

Author:Robert L. Sexton

Publisher:Robert L. Sexton

Chapter25: Money, Banking, And The Federal Reserve System

Section: Chapter Questions

Problem 13P

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ou just deposited $4,000 in cash into a checking account at the local bank. Assume that banks lend out all excess reserves and there are no leaks in the banking system. That is, all money lent by banks gets deposited in the banking system. Round your answers to the nearest dollar. If the reserve requirement is 1212%, how much will your deposit increase the total value of checkable bank deposits? $ If the reserve requirement is 44%, how much will your deposit increase the total value of checkable deposits? $ Increasing the reserve requirement the money supply.
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Let the reserve requirement be 15 percent for deposits. Assume there are not excess reserves. If the currency demand equals 40 percent of deposits and total reserves equal $60 billion, then an open markey sale of $1.5 billion in government bonds should Reduce the money supply from $160 billion to $156 billion Increase the money supply from $400 billiion to $410 billion Reducce the money supply from $400 billion to $390 bilion Reduce the money supply from $560 billion to $546 billion
1. a) Suppose that Tk.10,000 in new taka bills (never seen before) falls magically from the sky into your hands. What are the minimum increase and the maximum increase in the money supply that may result? Assume the required reserve ratio is 10 percent. b) Suppose you receive Tk. 10,000 from your grandmother and deposits the money in a saving account. your grandmother gave you the money by writing a check on her saving account. Would the maximum increase in the money supply still be what you found it to be in part a) where you received the money from the sky? Why or why not? c) Suppose that instead you getting Tk. 10,000 from the sky or a check through your grandmother, you get the money from your mother who had buried it in a can in her backyard. In this case, would the maximum increase in the money supply be what you found it to be in part a)? Why or why not? 2. a) Suppose growth rate of Real GDP is 6% and the growth rate of velocity is 3%. If Bangladesh Bank wants to have a 5 %…
a) Suppose that Tk.10,000 in new taka bills (never seen before) falls magically from the sky into your hands. What are the minimum increase and the maximum increase in the money supply that may result? Assume the required reserve ratio is 10 percent.b) Suppose you receive Tk. 10,000 from your grandmother and deposits the money in a saving account. your grandmother gave you the money by writing a check on her saving account. Would the maximum increase in the money supply still be what you found it to be in part a) where you received the money from the sky? Why or why not? c) Suppose that instead you getting Tk. 10,000 from the sky or a check through your grandmother, you get the money from your mother who had buried it in a can in her backyard. In this case, would the maximum ncrease in the money supply be what you found it to be in part a)? Why or why not?