Question

Provide a brief explanation or show work

7. Suppose the banking system currently has $400 billion in reserves, the reserve requirement is 8 percent, and excess reserves amount to $5 billion. What is the level of deposits?

8. Explain the effect of each of the following scenarios on money supply: (You need to say if money supply increases or decreases and also how)

a. When the Fed buys treasury bonds from the public b. When the Fed decides to ease on banks by lowering the reserve-requirements: c. When the Fed decides to pay interest on excess reserves of banks: d. When the Fed sells treasury bonds to the public e.When the Fed raises the discount rates

9. In a simple graph show the structure of the Fed and very shortly explain the main objective of the Fed.

10. What are the three basic functions of money? Which one is more important than the other two functions and why?

11. The amount of currency in Assumptionland is 430,000. The amount of bank deposits in Assumptionland is 4,310,000. The amount of bank reserves in Assumptionland is 3,400,000 What is the money multiplier in Assumptionland?

Answer 1

Answer - 7

The reserve requirement is 8%

Suppose the level of deposit is $x

The required reserve = 8x/100=2x/25

Required reserve=Reserve- Excess Reserve