Fill in the following blanks: (A)The money supply consists of Currency + Checkab
ID: 1201158 • Letter: F
Question
Fill in the following blanks:
(A)The money supply consists of Currency + Checkable Deposits (NOT including currency in bank's vaults and NOT including banks' deposits at the Fed). Before the First National Bank made the $90 loan, no one outside the bank held any currency, and Checkable Deposits were equal to 100, so the money supply was equal to 0 + 100 = 100.
When the First National Bank made the loan, the borrower received $90 in cash, but checkable deposits did not fall. Thus, the money supply was equal to $ (..........)of currency in the hands of the non-bank public plus $(........) of Deposits, for a total of $(............).
(B)
Suppose banks lend all of their excess reserves, and all the money loaned out by banks gets re-deposited back into the banking system when the borrowed money is spent.
If the reserve requirement were 10%, then $100 of new reserves received by the banking system could ultimately support 1(.........) / x $100 = $ (...........)of Checkable Deposits.
If the reserve requirement were 25%, $100 of reserves could support 1(..........)/ x $100 = $(.........) of Checkable Deposits.
If the reserve requirement were100%, $100 of reserves could support 1(........)/ x $100 = $(...........) of Checkable Deposits.
Do not use dollar signs or commas, and use a decimal point only if the number you need to express is less than 1.
(C)
While cleaning your apartment, you find a $50 bill under the sofa cushion. You deposit the $50 into your checking account. If the reserve requirement is 20%, what is the maximum amount that the money supply could ultimately increase? (Remember that the money supply is Currency + Deposits - and that the amount of Currency fell by $50 when you put the cash in the bank).
The change in currency would be (...............) and the maximum ultimate change in deposits would be at most(..............) , so the money supply would rise by at most(..........) .
Suppose you deposit the $50, but the bank chooses not to lend any of its excess reserves. By how much would the money supply ultimately increase in this case?
The change in currency would be (................) and the ultimate change in deposits would be(............) , so the money supply would rise by(...........) .
Do not use dollar signs, decimal points, or commas - but DO use minus signs when appropriate.
Explanation / Answer
When the First National Bank made the loan, the borrower received $90 in cash, but checkable deposits did not fall. Thus, the money supply was equal to $ (....90......)of currency in the hands of the non-bank public plus $(.....100...) of Deposits, for a total of $(........190....).
While cleaning your apartment, you find a $50 bill under the sofa cushion. You deposit the $50 into your checking account. If the reserve requirement is 20%, what is the maximum amount that the money supply could ultimately increase? (Remember that the money supply is Currency + Deposits - and that the amount of Currency fell by $50 when you put the cash in the bank).
The change in currency would be (...........-50....) and the maximum ultimate change in deposits would be at most(....40..........) , so the money supply would rise by at most(....40......) .
Suppose you deposit the $50, but the bank chooses not to lend any of its excess reserves. By how much would the money supply ultimately increase in this case?
The change in currency would be (..........-50......) and the ultimate change in deposits would be(......50......) , so the money supply would rise by(...0........) .
Do not use dollar signs, decimal points, or commas - but DO use minus signs when appropriate.
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