Consider the following information about banking system:
Reserves (R) = $500 billion
Currency (C) = $400 billion
Required Reserves (RR) = $80 billion
Required Reserve Ratio (r) = 0.1
a. What is the value of excess reserves in the banking system?
b. What is the value of deposits in the banking system?
c. What is the value of the money supply (M1)?
d. What is the size of the monetary base?
e. What is the value of the money multiplier? What does it tell us?
f. If the excess reserve ratio increases by 0.06, while value of the required reserve ratio and currency to deposits ratio stay the same, what will be the value of the money multiplier? The value of the money supply?
g. If the Fed wishes to have the value of the money supply in the economy at the initial level (part c), how should it respond?
h. How much in government bonds should the Fed sell or buy?
i. If the Fed buys from Chase 10 million in government bonds, given the money multiplier in part f, what would be the change in the money supply?