question archive Suppose that currency in circulation is $1200 billion, the amount of checkable deposits is $800 billion, required reserve ratio is 10%, and excess reserves are $20 billion
Suppose that currency in circulation is $1200 billion, the amount of checkable deposits is $800 billion, required reserve ratio is 10%, and excess reserves are $20 billion
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Suppose that currency in circulation is $1200 billion, the amount of checkable deposits is $800 billion, required reserve ratio is 10%, and excess reserves are $20 billion. a. Calculate the money supply, the currency deposit ratio, excess reserve ratio and the money multiplier. b. Suppose the central bank conducts an open market purchase of $2000 billion bonds from banking system. Assuming the ratios you calculated in part a remain the same, what would be the money supply now? C= 1200, D = 800, r=.1 a. M=C+D=1200 + 800 = 2000 c= C/D = 1200/800 = 1.5 e = 20/800 = 0.025 m=(1 + c)/(r+e+ c) = (1 + 1.5)/(.1 +0.025 +1.5) = 2.5/1.625 = 1.5385 b. M=m*MB = (C+Dir+20+2000)m = (1200 +90 + 20 + 2000) * 1.5385 = 3310 * 1.5385 = 5092.3077
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