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Unformatted text preview: ECON 101B: Section 26 Handout Date: 04/22/2011 Question 1 In the simple fractional-reserve model of the banking system, in which the currency-deposit ratio is zero, how much would the money supply eventually rise if someone received an additional $1,000 in currency and the reserve-deposit ratio were 0.10? Explain. Question 2 Calculate the money multiplier for the following values of the currency-deposit ratio cr and the reserve- deposit ratio rr : 1. cr = 0 : 5 ; rr = 0 : 25 . 2. rr = 1 : ; cr = any fraction. Explain this result. Question 3 Suppose the banks in Jitteristan have a reserve-deposit ratio of 10 percent and the currency-deposit ratio is 20 percent. 1. If the Federal Reserve increases the monetary base by $500 through open market operations, what will be the increase in the money supply? 2. If the Federal Reserve increases the discount rate and banks react by increasing the reserve-deposit ratio to 15 percent, what is the change in the multiplier? Will this change increase or decrease theratio to 15 percent, what is the change in the multiplier?...
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- Spring '08