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Questions and Answers

(338 solutions)

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If the price level doubles, _______.

d. the value of money has been reduced by half...

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Posted by Cleveland on September 10, 2024
When prices rise at an extraordinarily high rate, it is called _______.


b) hyperinflation...

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Posted by Cleveland on September 10, 2024
Substantial or persistent inflation is caused by _______.


c. governments that print too much money...

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Posted by Cleveland on September 10, 2024
The interest rate on reserves is the interest rate that the Fed pays banks for holding reserves on deposit at the Fed. For many years, open market operations were the Fed’s primary tool for monetary policy. However, since October 2008, it relies more on interest on reserves.
A decrease in the interest rate on reserves tends to encourage banks to hold     reserves.

The interest rate on reserves is the interest rate that the Fed pays banks for holding reserves on deposit at the Fed. For many years, open market operations were the Fed’s primary tool for monetary policy. However, since October 2008, it relies more on interest on reserves.A decrease in t...

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Posted by Cleveland on September 9, 2024
The Federal Reserves establishes the interest rate charged on funds it loans to banks and other financial institutions. A lower interest rate    the incentive to borrow funds from the Federal Reserve, thereby    the quantity of reserves in the banking system, which causes the money supply to    .
When the Federal Reserve loans less funds to banks and another financial institutions, the quantity of reserves in the banking system     and the money supply    .

The Federal Reserves establishes the interest rate charged on funds it loans to banks and other financial institutions. A lower interest rateincreases   the incentive to borrow funds from the Federal Reserve, therebyincreasing   the quantity of reserves in the banking s...

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Posted by Cleveland on September 9, 2024
Use the information given in Great Lakes National Bank's balance sheet to answer the following questions.
Bank's Balance Sheet
AssetsLiabilities and Owners' Equity
Reserves$150Deposits$1,200
Loans$600Debt$200
Securities$750Capital (owners' equity)$100
Suppose the owners of the bank borrow $100 to supplement their existing reserves. This would increase the reserves account and    the    account.
This would also bring the leverage ratio from its initial value of    to a new value of    .
Which of the following statements regarding the capital requirement is true? Check all that apply.

Use the information given in Great Lakes National Bank's balance sheet to answer the following questions.Bank's Balance SheetAssetsLiabilities and Owners' EquityReserves$150Deposits$1,200Loans$600Debt$200Securities$750Capital (owners' equity)$100Suppose the owners of the bank borrow $100 to suppleme...

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Posted by Cleveland on September 9, 2024

 The reserve requirement, open market operations, and the money supply

Consider a system of banking in which the Federal Reserve uses required reserves to control the money supply (as was the case in the United States before 2008). Assume that banks do not hold excess reserves and that households do not hold currency, so the only money exists in the form of demand deposits. To further simplify, assume the banking system has total reserves of $400. Determine the money multiplier as well as the money supply for each reserve requirement listed in the following table.
Reserve RequirementSimple Money MultiplierMoney Supply
(Percent)(Dollars)
20        
10        
A higher reserve requirement is associated with a    money supply.
Suppose the Federal Reserve wants to increase the money supply by $200. Maintain the assumption that banks do not hold excess reserves and that households do not hold currency. If the reserve requirement is 10%, the Fed will use open-market operations to    
worth of U.S. government bonds.
Now, suppose that, rather than immediately lending out all excess reserves, banks begin holding some excess reserves due to uncertain economic conditions. Specifically, banks increase the percentage of deposits held as reserves from 10% to 25%. This increase in the reserve ratio causes the money multiplier to    to    . Under these conditions, the Fed would need to    
worth of U.S. government bonds in order to increase the money supply by $200.
Which of the following statements help to explain why, in the real world, the Fed cannot precisely control the money supply? Check all that apply.

Consider a system of banking in which the Federal Reserve uses required reserves to control the money supply (as was the case in the United States before 2008). Assume that banks do not hold excess reserves and that households do not hold currency, so the only money exists in the form of demand depo...

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Posted by Cleveland on September 9, 2024
Suppose Southeast Mutual Bank, Walls Fergo Bank, and PJMorton Bank all have zero excess reserves. The required reserve ratio is presently set at 20%. Bob, a Southeast Mutual Bank customer, deposits $1,500,000 into his checking account at the local branch.
Complete the following table to reflect any changes in Southeast Mutual Bank's T-account (before the bank makes any new loans).
AssetsLiabilities
                
Complete the following table to show the effect of a new deposit on excess and required reserves when the required reserve ratio is 20%.
Hint: If the change is negative, be sure to enter the value as negative number.
Amount DepositedChange in Excess ReservesChange in Required Reserves
(Dollars)(Dollars)(Dollars)
1,500,000 
Now, suppose Southeast Mutual Bank loans out all of its new excess reserves to Yvette, who immediately uses the funds to write a check to Sean. Sean deposits the funds immediately into his checking account at Walls Fergo Bank. Then Walls Fergo Bank lends out all of its new excess reserves to Eric, who writes a check to Cho, who deposits the money into her account at PJMorton Bank. PJMorton lends out all of its new excess reserves to Ginny in turn.
Fill in the following table to show the effect of this ongoing chain of events at each bank. Enter each answer to the nearest dollar.
Increase in DepositsIncrease in Required ReservesIncrease in Loans
(Dollars)(Dollars)(Dollars)
Southeast Mutual Bank
Walls Fergo Bank
PJMorton Bank
Assume this process continues, with each successive loan deposited into a checking account and no banks keeping any excess reserves. Under these assumptions, the $1,500,000 injection into the money supply results in an overall increase of    in demand deposits.

Complete the following table to reflect any changes in Southeast Mutual Bank's T-account (before the bank makes any new loans).AssetsLiabilitiesReserves   $1,500,000   Deposits   $1,500,000   Points:1 / 1Close ExplanationExplanation:When Bob deposits the $1,50...

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Posted by Cleveland on September 9, 2024
Suppose Southeast Mutual Bank, Walls Fergo Bank, and PJMorton Bank all have zero excess reserves. The required reserve ratio is presently set at 20%. Bob, a Southeast Mutual Bank customer, deposits $1,500,000 into his checking account at the local branch.
Complete the following table to reflect any changes in Southeast Mutual Bank's T-account (before the bank makes any new loans).
AssetsLiabilities
                
Complete the following table to show the effect of a new deposit on excess and required reserves when the required reserve ratio is 20%.
Hint: If the change is negative, be sure to enter the value as negative number.
Amount DepositedChange in Excess ReservesChange in Required Reserves
(Dollars)(Dollars)(Dollars)
1,500,000 
Now, suppose Southeast Mutual Bank loans out all of its new excess reserves to Yvette, who immediately uses the funds to write a check to Sean. Sean deposits the funds immediately into his checking account at Walls Fergo Bank. Then Walls Fergo Bank lends out all of its new excess reserves to Eric, who writes a check to Cho, who deposits the money into her account at PJMorton Bank. PJMorton lends out all of its new excess reserves to Ginny in turn.
Fill in the following table to show the effect of this ongoing chain of events at each bank. Enter each answer to the nearest dollar.
Increase in DepositsIncrease in Required ReservesIncrease in Loans
(Dollars)(Dollars)(Dollars)
Southeast Mutual Bank
Walls Fergo Bank
PJMorton Bank
Assume this process continues, with each successive loan deposited into a checking account and no banks keeping any excess reserves. Under these assumptions, the $1,500,000 injection into the money supply results in an overall increase of    in demand deposits.

Complete the following table to reflect any changes in Southeast Mutual Bank's T-account (before the bank makes any new loans).AssetsLiabilitiesReserves   $1,500,000   Deposits   $1,500,000   Points:1 / 1Close ExplanationExplanation:When Bob deposits the $1,50...

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Posted by Cleveland on September 9, 2024

6. Required and excess reserves

Suppose that Southeast Mutual Bank currently has $200,000 in demand deposits and $130,000 in outstanding loans. Assume the Federal Reserve has the reserve requirement set at 10%.
Based on this information, complete the following table detailing Southeast Mutual Bank’s reserves, required reserves, and excess reserves.
Southeast Mutual
ReservesRequired ReservesExcess Reserves
(Dollars)(Dollars)(Dollars)

Based on this information, complete the following table detailing Southeast Mutual Bank’s reserves, required reserves, and excess reserves.Southeast MutualReservesRequired ReservesExcess Reserves(Dollars)(Dollars)(Dollars)70,00020,00050,000Points:1 / 1Close ExplanationExplanation:A bank's reser...

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Posted by Cleveland on September 9, 2024