Maurice Tutor

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Category > Management Posted 07 Jul 2017 My Price 12.00

currency in circulation

Suppose that currency in circulation is $600 billion, the amount of deposits is $900 billion and excess reserves are $15 billion.

i.Calculate the money supply, the currency deposit ratio, the excess reserves ratio and the money multiplier

 

 

ii.Suppose the central bank conducts an unusually large open market purchase of bonds held banks of $1400 billion due to a sharp contraction in the economy, Assuming the ratios you calculated in parti are the same, what do you predict will be the effect on the money supply?

 

iii.Suppose the central bank conducts the same open market purchase as in part ii, except that banks choose to hold all of these proceeds as excess reserves rather than loan them out, due to a fear of a financial crisis. Assuming that currency and deposits remain the same, what happens to the amount of excess reserves, the excess reserves ratio, the money supply and the money multiplier

 

iiii.Following the financial crisis in 2008, the Federal Reserve began injecting the banking system with massive amounts of liquidity, and at the same time, very little lending occurred. As a result, the M1 money multiplier was below 1 for most of the time from October 2008 through 2011. How does this relate to your answer to part (iii)?)

Answers

Maurice Tutor
(5)
Status NEW Posted 07 Jul 2017 09:07 PM My Price 12.00

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