RR= Required Reserves ER=Excess Reserves er= Desired excess Reserves K=Currency

Question

RR= Required Reserves

ER=Excess Reserves

er= Desired excess Reserves

K=Currency Ratio

AR=Actual Reserves

Question 2

The next six questions will deal with Economy G, which contains Bank One. Bank One has $10,000 cash in its vaults and $8,000 US government bonds, as well as $22,000 Deposit in the Fed. It has $250,000 in checking and $100,000 in savings deposits. It uses our default rr (required Reserves) and its residents hold $50,000 in currency (cash).

Calculate Bank One's er (desired excess reserves ratio). (We usually calculate er for an entire economy, but we'll do it this way for now. Round your answer to three decimal places; don't convert to percent.

Question 3

Again we will deal with Economy G, containing Bank One. Bank One has $10,000 cash in its vaults and $8,000 US government bonds, as well as $22,000 Deposit in the Fed. It has $250,000 in checking and $100,000 in savings deposits. It uses our default rr and its residents hold $50,000 in currency (cash).

Calculate the maximum amount of new money that Bank One can create, on its own, given this information.

Question 4

Again we will deal with Economy G, in which we find Bank One. Bank One has $10,000 cash in its vaults and $8,000 US government bonds, as well as $22,000 Deposit in the Fed. It has $250,000 in checking and $100,000 in savings deposits. It uses our default rr and its residents hold $50,000 in currency (cash).

Let's pretend for the sake of this question there are many banks in Economy G. Calculate the maximum amount of new money all banks - the whole banking system - can create, given this information.

Question 5

Again we will deal with Economy G, in which we find Bank One. Bank One has $10,000 cash in its vaults and $8,000 US government bonds, as well as $22,000 Deposit in the Fed. It has $250,000 in checking and $100,000 in savings deposits. It uses our default rr and its residents hold $50,000 in currency (cash).

Calculate the "real world" m1 multiplier for Economy G. Assume for the purposes of this question that Bank One is the only bank in the economy. Round all intermediate steps and your final answer to three decimal places. Do not convert anything to percent.

Question 6

Again we will deal with Economy G, in which we find Bank One. Bank One has $10,000 cash in its vaults and $8,000 US government bonds, as well as $22,000 Deposit in the Fed. It has $250,000 in checking and $100,000 in savings deposits. It uses our default rr and its residents hold $50,000 in currency (cash).

Let's ignore for this question the matter of how many banks exist in the economy - we'll just assume for this one that there are enough for the full, multiplied money creation process to occur.

Calculate the actual amount of new money all banks - the whole banking system - will create, given this information.

Question 7

For the last time, we deal with Economy G, in which we find Bank One. Bank One has $10,000 cash in its vaults and $8,000 US government bonds, as well as $22,000 Deposit in the Fed. It has $250,000 in checking and $100,000 in savings deposits. It uses our default rr and its residents hold $50,000 in currency (cash).

Using our best guess, it appears that Bank One is managed in a ______________ oriented style; we know this by looking at the bank's __________.

(If you need a cutoff for what's "high," let's say - just for now - that 70% is a good cutoff.)

safety; AR(actual Reserves)

safety; er(Excess Reserves)

profit; AR

profit; er

Question 8

A given economy is described by the following:

- All banks together have $50,000 in checking accounts and $15,000 deposit in the Fed.
- All banks together have $6,000 in cash, and all citizens together have $2,500 in cash.

Calculate the currency ratio k for this economy. Round to three decimal places as needed. Do not convert to percent.

Question 9

The real-world m1 multiplier would be equal to the naive multiplier if _____________ are equal to zero.

k and rr

k, er, and rr

k and er

rr and er

Question 10

Marijuana is now legal in more states than it was twenty years ago. We would expect to see the real-world multiplier ________ as a result, due to _____________ in the currency ratio.

(Remember, illegal transactions must be conducted in cash (or something like BitCoin, but we'll ignore that for now.)

increase; an increase

increase; a decrease

decrease; a decrease

decrease; an increase

safety; AR(actual Reserves)

safety; er(Excess Reserves)

Explanation / Answer

Ans 2 ) Bank one has these following reserves

The default RR is 10% which means the bank has to keep 10 % of reserve apart from cash in vault and fed reserves

Here extra reserve bank needs will be => (358000*.10)-(22000+10000) = 3800

now, the desired excess reserves ratio will be =   35800/354200= 0.10 (358000-3800 = 354200)

Ans 3) the maximum amount of new money bank one can lend is the excess reserves divide by the money multiplier

Ans 7) safety er and profit er

ans 9) k, er and rr

a

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