1) Suppose that the total liabilities of a depository are checkable deposits equal to $2 billion. It has $1.65 billion in loans and securities, and the required reserve ratio is 15 percent.
Does this institution hold any excess reserves? If so, how much?
2) The Federal Reserve purchases $1 million in US Treasury bonds from a bond dealer and the dealer's bank credits the dealer's account. The required reserve ratio is 15 percent. The bank immediately lends its excess reserves. How much will the bank be able to lend its customers after the Fed's purchase, ceteris paribus? If banks are fully loaned up the introduction of the new $1 million will change the money supply by how much?
3) Suppose that each 0.1 percentage point decrease in the equilibrium interest rate induces a $10 billion in real planned investment spending by businesses. In additional the investment spending multiplier is equal to 5. The money multiplier is equal to 4. Furthermore, every $20 billion increase in the money supply brings a 0.1 percentage point reduction in the equilibrium interest rate. Use this information to answer the following questions, ceteris paribus.
a) How much must real planned investment spending increase if the Federal Reserve desires to bring about a $100 billion increase in equilibrium real GDP?
b) How much must the money supply change for the Fed to induce the change in real planned investment calculated in part a?
c) What dollar amount of open market operations must the Fed undertake to bring about the money supply change calculated in part b?
4) Consider the following data. Calculate M1 and M2.