Required Reserve Case Study
1. when you multiply Large-denomination time deposits $ 304 billion times 947 billion you get a total of 292623 billion for M1, Small-denomination time deposits 198 billion + 292623= 292929 billion=326 billion=293275 billion for the grand total of M2
2. If 0.25 represents 25% and the reserve means how much cash has to stay in the bank, then 25% of 4,000 is 1,000. That leaves 3,000 for a loan.
The "excess" is the amount over the "required reserve", 3,000 is 2,000 over the 1,000 required reserve. 2,000 is a 50% excess of the "required reserve" of the 4,000 $ deposit.
3. The formula for the money multiplier is:
M=1/R,..... M(money multiplier)=1/r(reserve ration) The money multipliers for required reserve ratios of 0.15 and 0.20 If r …show more content…
The Fed purchases $10 million worth of U.S. government bonds from a bank. AT THIS POINT THE BANKS ASSET HAVE SHOT UP BECAUSE THEY HAVE JUST SOLD 10 MILLION WORTH OF US GOVERMENT BOND WHICH TURNS INTO REVENUE, THE LIABILITIES ARE NOT AFFECTED, THE RESERVES ARE DECREASED BECAUSE 10 MILLION$ WORTH OF BONDS HAVE NOW LEFT TH
6.Athe money supply is currently $500 billion and the Fed wishes to increase it by $100 billion.Given a required reserve ratio of 0.25, what should it do. THE BANK SHOULD INCREASE THE RESERVE RATIO SO THAT THE MONEY SUPPLY CAN INCREASE AS WELL.
B. If it decided to change the money supply by changing the required reserve ratio, what change should it make? THE CHANGE THE THAT THE FED SHOULD MAKE IS TO INCREASE THE RESERVE RATIO SO THAT THE AMOUNT OF MONEY COLLECTED IN RESERVE ACCOUNTS INCREASE AS WELL.
7. U.S. Federal Reserve notes circulate outside the United States, less than 10% of all M2 money is cash: Even if it were all held outside in the U.S., it would be small compared with the other financial instruments in U.S. dollars held outside the U.S. or by people, companies, or governments outside the U.S. (U.S. Treasury notes, bank accounts, etc.) In fact, half to 2/3 of the currency is probably being help …show more content…
c) market interest rate increases, quantity of money demanded, I think DECREASES,
Investment spending decrease, Aggregate demand DECREASES = Aggregate spending = C+I+G. If I goes down, aggregate demand goes down, Potential output- DOES NOT CHANGE, I would argue that potential output does not change. Potential output is the output, in real dollars, that could be obtained under full employment. PRICE LEVEL WILL DECREASE, The goal of closing an expansionary gap is to lower inflation pressure. Price level should decline. Equilibrium real GDP- decrease
10. market interest rate increases, quantity of money demanded, I think DECREASES,
Investment spending decrease, Aggregate demand DECREASES = Aggregate spending = C+I+G. If I goes down, aggregate demand goes down, Potential output- DOES NOT CHANGE, I would argue that potential output does not change. Potential output is the output, in real dollars, that could be obtained under full employment. PRICE LEVEL WILL DECREASE, The goal of closing an expansionary gap is to lower inflation pressure. Price level should decline. Equilibrium real GDP-
2. If 0.25 represents 25% and the reserve means how much cash has to stay in the bank, then 25% of 4,000 is 1,000. That leaves 3,000 for a loan.
The "excess" is the amount over the "required reserve", 3,000 is 2,000 over the 1,000 required reserve. 2,000 is a 50% excess of the "required reserve" of the 4,000 $ deposit.
3. The formula for the money multiplier is:
M=1/R,..... M(money multiplier)=1/r(reserve ration) The money multipliers for required reserve ratios of 0.15 and 0.20 If r …show more content…
The Fed purchases $10 million worth of U.S. government bonds from a bank. AT THIS POINT THE BANKS ASSET HAVE SHOT UP BECAUSE THEY HAVE JUST SOLD 10 MILLION WORTH OF US GOVERMENT BOND WHICH TURNS INTO REVENUE, THE LIABILITIES ARE NOT AFFECTED, THE RESERVES ARE DECREASED BECAUSE 10 MILLION$ WORTH OF BONDS HAVE NOW LEFT TH
6.Athe money supply is currently $500 billion and the Fed wishes to increase it by $100 billion.Given a required reserve ratio of 0.25, what should it do. THE BANK SHOULD INCREASE THE RESERVE RATIO SO THAT THE MONEY SUPPLY CAN INCREASE AS WELL.
B. If it decided to change the money supply by changing the required reserve ratio, what change should it make? THE CHANGE THE THAT THE FED SHOULD MAKE IS TO INCREASE THE RESERVE RATIO SO THAT THE AMOUNT OF MONEY COLLECTED IN RESERVE ACCOUNTS INCREASE AS WELL.
7. U.S. Federal Reserve notes circulate outside the United States, less than 10% of all M2 money is cash: Even if it were all held outside in the U.S., it would be small compared with the other financial instruments in U.S. dollars held outside the U.S. or by people, companies, or governments outside the U.S. (U.S. Treasury notes, bank accounts, etc.) In fact, half to 2/3 of the currency is probably being help …show more content…
c) market interest rate increases, quantity of money demanded, I think DECREASES,
Investment spending decrease, Aggregate demand DECREASES = Aggregate spending = C+I+G. If I goes down, aggregate demand goes down, Potential output- DOES NOT CHANGE, I would argue that potential output does not change. Potential output is the output, in real dollars, that could be obtained under full employment. PRICE LEVEL WILL DECREASE, The goal of closing an expansionary gap is to lower inflation pressure. Price level should decline. Equilibrium real GDP- decrease
10. market interest rate increases, quantity of money demanded, I think DECREASES,
Investment spending decrease, Aggregate demand DECREASES = Aggregate spending = C+I+G. If I goes down, aggregate demand goes down, Potential output- DOES NOT CHANGE, I would argue that potential output does not change. Potential output is the output, in real dollars, that could be obtained under full employment. PRICE LEVEL WILL DECREASE, The goal of closing an expansionary gap is to lower inflation pressure. Price level should decline. Equilibrium real GDP-