HW11 - Homework 11 ECON 010, Fall 2011 Assumptions: 1)...

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ECON 010, Fall 2011 Assumptions: 1) Money Supply is M1. 2) Demand deposit and checking account are the same. Question 1: Money and Money Multiplier A commercial bank gets $1,000 in currency from a customer as a demand deposit. a. How much in deposits can the banking system as a whole maximally generate, if the required reserve ratio is 20%? b. How much in additional money supply is generated? c. What happens to the money supply if the required reserve ratio is 0%, what if it is a 100%? d. How would your answer to part b) change if instead of a commercial bank getting $1000 in deposits, it instead sold $1000 worth of securities to consumers to the Federal Reserve. Question 2: Money and Money Multiplier Use the information in the table below to answer the following questions. Last Bank of Cedar Bend Assets Liabilities Reserves: $45,000 Deposits: $150,000 Loans: $105,000 a. If the reserve requirement is 25%, calculate the amount of excess reserves that this bank holds. b. If this bank decides to decrease its reserves to the required amount, calculate the increase in the money supply which will result from this change? 1
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This note was uploaded on 04/04/2012 for the course ECON 010 taught by Professor Stein during the Fall '07 term at UPenn.

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HW11 - Homework 11 ECON 010, Fall 2011 Assumptions: 1)...

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