question archive Use the following information about Macroland to answer this question Bank deposits at the central bank $100 millionCurrency in bank vaults $50 millionCurrency held by the public 75 millionChequeable deposits 600 millionTraveller cheques 5 million a) What are bank reserves equal to in Macroland?b) Suppose banks hold no excess reserves in Macroland? What is required reserves ratio given the information in this table? c) If the public does not change its currency holdings, what will happen to the level of chequeable deposits in Macroland, relative to their initial level, if the central bank of Macroland purchases $ 10 million worth of treasury bills in the open market? d) If the public does not change its currency holdings, what will happen to the level of chequeable deposits in Macroland, relative to their initial level, if the central bank of Macroland sells $ 5 million worth of treasury bills in the open market?
Use the following information about Macroland to answer this question Bank deposits at the central bank $100 millionCurrency in bank vaults $50 millionCurrency held by the public 75 millionChequeable deposits 600 millionTraveller cheques 5 million a) What are bank reserves equal to in Macroland?b) Suppose banks hold no excess reserves in Macroland? What is required reserves ratio given the information in this table? c) If the public does not change its currency holdings, what will happen to the level of chequeable deposits in Macroland, relative to their initial level, if the central bank of Macroland purchases $ 10 million worth of treasury bills in the open market? d) If the public does not change its currency holdings, what will happen to the level of chequeable deposits in Macroland, relative to their initial level, if the central bank of Macroland sells $ 5 million worth of treasury bills in the open market?
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Use the following information about Macroland to answer this question
Bank deposits at the central bank $100 millionCurrency in bank vaults $50 millionCurrency held by the public 75 millionChequeable deposits 600 millionTraveller cheques 5 million
a) What are bank reserves equal to in Macroland?b) Suppose banks hold no excess reserves in Macroland? What is required reserves ratio given the information in this table?
c) If the public does not change its currency holdings, what will happen to the level of chequeable deposits in Macroland, relative to their initial level, if the central bank of Macroland purchases $ 10 million worth of treasury bills in the open market?
d) If the public does not change its currency holdings, what will happen to the level of chequeable deposits in Macroland, relative to their initial level, if the central bank of Macroland sells $ 5 million worth of treasury bills in the open market?
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Part A
Bank reserves = bank deposits at central bank + currency in bank vault
= $(100+50)
= $150 million
Part A
Bank reserves = bank deposits at central bank + currency in bank vault
= $(100+50)
= $150 million
Part B
Required reserve ratio = [Total reserve/ chequeable deposit] x 100
=(150/600) x 100
=25%
Part C
The central bank's action of purchasing bonds raises the monetary base, i.e. the chequeable deposits.
Money multiplier= 1 / required reserve ratio
= 1 / 25%
=4
Increase in chequeable deposits =4*10=40 million
New level of chequeable deposits = 600+40= $640 million
Part D
Selling of bonds results in a decrease in the monetary base, i.e. chequeable deposits.
Money Multiplier=4
Decrease in chequeable deposits = 4 x 5 = $20 million
New level of chequeable deposits = 600 - 20 = $580 million
