Compute the impact on the money multiplier of an increase in the currency-to-deposit ratio from 10...

Question

Question

Compute the impact on the money multiplier of an increase in the currency-to-deposit ratio from 10 percent to 14 percent when

Suppose the currency-to-deposit ratio is 0.2, the excess reserve-to-deposit ratio is 0.05, and the required reserve ratio is

business finance

Add a comment Improve this question Transcribed image text

Answer 1

Answer #1

1) When desired currency holdings = 10% of deposits , m = ( 1+0.1) /(0.1+0.08+0.03) = 5.24

When desired currency holdings = 14% of deposits , m = ( 1+0.14) /(0.14+0.08+0.03) = 4.56

2) Initial money multiplier = ( 1+0.2) /( 0.2+0.05+0.05) = 4

If currency deposit rises = ( 1+0.25) / ( 0.25+0.05+0.05) = 3.57

If excess reserve deposit ratio rises = ( 1+0.2) /( 0.2+0.05+0.05 +0.05) = 3.43

Falls more by increase in excess reserve to deposit ratio

Add a comment

Answer 2

Similar Homework Help Questions

Compute the impact on the money multiplier of an increase in the currency-to-deposit ratio from 10...

Compute the impact on the money multiplier of an increase in the currency-to-deposit ratio from 10 percent to 15 percent when the reserve requirement is 10 percent of deposits, and banks’ desired excess reserves are 3 percent of deposits. Instructions: Enter your responses rounded to two decimal places. When desired currency holdings = 10% of deposits, m = When desired currency holdings = 15% of deposits, m =
Suppose the currency-to-deposit ratio is 0.25, the excess reserve-to-deposit ratio is 0.03, and the required reserve...

Suppose the currency-to-deposit ratio is 0.25, the excess reserve-to-deposit ratio is 0.03, and the required reserve ratio is 0.1. Which will have a larger impact on the money multiplier: a rise of 0.05 in the currency ratio or in the excess reserve ratio? Instructions: Enter your response rounded to two decimal places. If the currency-to-deposit ratio rises to 0.3, the multiplier will be m = If, instead, the excess reserve-to-deposit ratio rises, the multiplier will be m =
Consider an open market purchase by the Fed of $11 billion of Treasury bonds. What is...

Consider an open market purchase by the Fed of $11 billion of Treasury bonds. What is the impact of the purchase on the bank from which the Fed bought the securities? The bank's securities (Click to select) by $11 billion and its reserves (Click to select) by $11 billion. Compute the impact on M1 assuming that: (1) the required reserve ratio is 5 percent; (2) the bank does not wish to hold excess reserves, and (3) the public does not...

14) If the desired reserve ratio is ten percent, currency in circulation is $400 billion, and...

14) If the desired reserve ratio is ten percent, currency in circulation is $400 billion, and chequable deposits are $800 billion, then the money multiplier is approximately ________. A) 2.5 B) 1.67 C) 2.0 D) 0.601 16) If the desired reserve ratio is ten percent, currency in circulation is $400 billion, chequable deposits are $800 billion, and excess reserves total $0.8 billion, then the excess reserves-chequable deposit ratio is ________. A) 0.001 B) 0.10 C) 0.01 17) If the desired...
Consider the following situations a. Bank reserves are $3O0, the public holds $200 in currency, and the desired rese...

Consider the following situations a. Bank reserves are $3O0, the public holds $200 in currency, and the desired reserve-deposit ratio is 0.25. Find deposits and the money supply Instructions: Enter your responses as whole numbers Deposits: $ Money supply. $ b. The maney supply is $550 and currency held by the public equals bank reserves The desired reserve-deposit ratio is 025 Find currency held by the public and bank reserves. Instructions: Enter your responses as whale numbers Currency held by...
Consider the following situations. a. Bank reserves are $100, the public holds $200 in currency, and...

Consider the following situations. a. Bank reserves are $100, the public holds $200 in currency, and the desired reserve-deposit ratio is 0.25. Find deposits and the money supply Instructions: Enter your responses as integer values. Deposits: Money supply: b. The money supply is $500 and currency held by the public equals bank reserves. The desired reserve-deposit ratio is 0.25. Find currency held by the public and bank reserves. Instructions: Enter your responses as integer values. Currency held by the public:...

serves. What is the simple deposit multiplier? The simple deposit multiplier is O A. the ratio...

serves. What is the simple deposit multiplier? The simple deposit multiplier is O A. the ratio of the amount of deposits created by banks to the amount of new reserv OB. the ratio of the amount of deposits created by banks to the amount of already existing reserves. OC. the ratio of the amount of new reserves to the amount of deposits created by banks. OD. the percentage of checkable deposits that the Fed specifies that banks must hold as...
6. If reserves in the banking system increase by $100, then checkable deposits will increase by...

6. If reserves in the banking system increase by $100, then checkable deposits will increase by $400 in the simple model of deposit creation when the required reserve ratio is eserve retioKeserves De posi+s 7. If the required reserve ratio is one-third, curreney in circulation is $300 billion, checkable deposits are $900 billion, and there is no excess reserve, then the MI money multiplier is 8. If the required reserve ratio is 10 percent, currency in circulation is $400 billion,...
(a)(i) Suppose the desired reserve ratio is 10% and there is no currency drain. Calculate the...

(a)(i) Suppose the desired reserve ratio is 10% and there is no currency drain. Calculate the change in money supply resulted from a S400 increase in the monetary based in the bank system. Show your calculation. (İİ) Suppose the desired reserve ratio is 10 percent. Peter deposits $1,000 in Bank A. Bank A keeps its minimum desired reserves and lends the excess to John. John spends his loan at Company A. Company A deposits the money it receives from John...

1. Suppose that households wished to maintain $1.00 in pocket money (currency and coin) and $10.00...

1. Suppose that households wished to maintain $1.00 in pocket money (currency and coin) and $10.00 in liquid savings assets (small CDs, money funds, and savings accounts) for every $1.00 in their checking accounts (transaction deposits). If banks choose their desired reserves to be ten cents for every dollar of transaction deposits, what are the reserve multiplier and the money (M2) multiplier if the Federal Reserve’s reserve requirement ratio is: Answers/Explanation 2. If households’ currency-deposit ratio is 1.25, and they...

Compute the impact on the money multiplier of an increase in the currency-to-deposit ratio from 10...

Homework Answers