econ assignment 2

Topics: Federal Reserve System, Money, Monetary policy Pages: 2 (377 words) Published: April 26, 2015
Megan Stansmore and Ivan Rodriguez Required Assignment #2 Economics 102
Professor Makpayo
4/24/12
1a. The maximum amount of money that the initial deposit can be expanded to is $50,000. With the use of the money multiplier, we were able to use the formula by taking the reciprocal of the reserved ratio and multiplying it by the initial deposit. MM = MM = = 10 5000 10 = $50,000

2a. When the Federal Reserve decides to double the required reserve rate; the maximum amount of money that the initial deposit can be expanded to is $25,000. Again, we used the money multiplier formula to find our answer. MM = MM = = 5 5000 5 = $25,000

3. The total money created and total reserves in 1 and 2 at the end of the 15-time lending cycles differentiate. When the reserve rate is at 10% the total reserves are $3,970.54, and when the reserve rate is at 20%, the total reserves are $4,824.08. The total money created at 10% is $35,734.90, and when total money is created at 20% it is $19,296.31. The possible explanation for the increase in the required reserve rate by the Fed is that they wanted to force the banking system to decrease the amount of money being created, which means less excess reserves. 4a. The maximum amount of money the initial deposit can be expanded to if the required reserve rate is 10 % and the currency drain is 5% is $21,000.  We find this by adding both the currency drain to the 1 on the numerator and the reserved ratio in the denominator. MM = MM = = 4.2 5000 4.2 = $21,000 5. The total money created and total reserve in 1 and 4 at the end of the 15-time lending cycles differentiate. When the reserve rate is at 10% the total reserves are $3,970.54, and when the reserve rate is at 10% with the 5% drain, the total reserves are $3,042.15. The total money created at 10% is $35,734.90, and when total money is created at 10% with the 5% drain is $25,858.30. The currency...
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