25 Jul WHAT HAPPENS TO THE AMOUNT OF EXCESS RESERVES THE EXCESS RESERVE RATIO THE MO N E Y SUPPLY AND THE MONEY MULTIPLIER?
billio Show more Suppose the currency in circulation is $600 billion the amount of checkable deposits is $900 billion and excess reserves are $15 billion. (Please with formulas and explanations) a. Calculate the money supply the currency deposit ratio the excess reserve ratio and the mo n e y multiplier. b. Suppose the central bank conducts an unusually large open market purchase of bonds held by banks of 81400 billion due to a sharp contraction in the economy. Assuming the ratios you calculated in part a are the same what do you predict will be the effect on the mo n e y supply? c. Suppose the central bank conducts the same open market purchase as in part b 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 reserve ratio the mo n e y supply and the money multiplier? d )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 c? Show less
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