Moving funds from savings accounts to cash m1 which

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Macroeconomics for Today
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Chapter 15 / Exercise 16
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5. A dollar bill; a passbook savings account; some IBM stock; an individual retirement account; a car; a house. 6.
7. (a) Refer to the following table. Required Reserve Ratio Money Multiplier Max. Expansion (Single Bank) Max. Expansion (Banking System) 10% 10 $90.00 $1,000 12.5% 8 $87.50 $800 20% 5 $80.00 $500 25% 4 $75.00 $400 (b) Refer to the preceding table. (c) Refer to the preceding table. 8. Refer to the following table. “Change in Excess Reserves for Bank A” is $875.00 initially, but will eventually be decreased to zero as Bank A continues to lend. Bank New Demand Deposits = Change in Reserves = Change in Required Reserves + Change in Excess Reserves = Change in Loans A $1,000.00 $1,000.00 $125.00 $875.00/0 $875.00 B $875.00 $875.00 $109.38 $765.62/0 $765.62 C $765.62 $765.62 $95.70 $669.92/0 $669.92 D $669.92 $669.38 $83.74 $586.18/0 $586.18 etc. $4,689.46$4,689.46$586.18$4,103.28/0$4,103.28Total $8,000.00 $8,000.00 $1,000.00 $7,000.00/0 $7,000.00 9. (a) Required reserves are $15,000 and excess reserves are $16,000. The bank can lend out all of its excess reserves—that is, $16,000. (b) The money multiplier =1/required reserve ratio = 1/0.15 = 6.667. (c) $16,000 ×6.667 = $106,666.67 10.
(b) Bank reserves are vault cash (100) and deposits at the central bank (200). If the banks are loaned up and the money multiplier is 5, demand deposits must be 1,500 (300 ×5). The money supply includes currency (700) and demand deposits (1,500) = 2,200 opeks. (c) To support a money supply of 3,100, with 2,400 opeks of demand deposits (1,500 + 900), using the same quantity of reserves (300), the money multiplier must be 8 (2,400/300). To get a money multiplier of 8, the required reserve ratio must be 12.5%. (d) If the money multiplier is 5, a purchase of 180 opeks will increase the money supply by 900.
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Chapter 15 / Exercise 16
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Chapter 10 [25]: The Money Supply and the Federal Reserve System 267

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