Macro Ch 10 Assignment
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Ch10Macro.zipContent/U5/h_problem.html
Assignment Chapter 10
Using what you learned in Chapter 10, complete the problems on the attached page. This assignment will look at how banks hold money, how the multiplier is calculated and how changes in Monetary policy by the Federal Reserve will impact your savings and ability to borrow.
Chapter 10: The Money Supply & The Federal Reserve System
When you deposit money into a bank, do you know what happens to it? It doesn’t simply sit there. Banks are actually allowed to loan out up to 90% of their deposits. For every $10 that you deposit, only $1 is required to stay put.
This practice is known as fractional reserve banking. Now, it’s fairly rare for a bank to only have 10% in reserves, and the number fluctuates. Since checkable deposits are part of the U.S. money supplies, fractional reserve banking, as you might have guessed, can have a big impact on these supplies.
This is where the money multiplier comes into play. The money multiplier itself is straightforward: it equals 1 divided by the reserve ratio. If reserves are at 10%, the minimum amount required by the Federal Reserve, then the money multiplier is 10. So if a bank has $1 million in checkable deposits, it has $10 million to work with for stuff like loans and reserves.
Now, typically, the money multiplier is more like 3, because banks can always hold more in reserves than the minimum 10%. When the money multiplier is higher, like during a boom, this gives the Fed more leverage to move M1 and M2 with a small change in reserves. But when the multiplier is lower, such as during a recession, the Fed has less leverage and must push harder to wield its indirect influence over M1 and M2. Here's the MR University video to help you complete your assignment.
Proceed to the next page to submit
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Chapter_10_Drop Box Assignment_FA18(2).xlsx
Sheet1
| Chapter 10: The Money Supply & The Federal Reserve System | 20 Points | |||||
| Drop Box Assignment | ||||||
| 1. Referring to the Balance Sheet for the Simpson National Bank, answer the following (6 points) | ||||||
| a. What is the current actual amount of reserves being held by the bank? | ||||||
| b. Assuming a 7% required reserve ratio, what is the amount of the required reserves? | ||||||
| c. What is the value of the excess reserves (current reserves - required reserves) held at the Simpson National Bank? | ||||||
| d. What is the value of the money multiplier? | ||||||
| e. If the Simpson National Bank receives an additional demand deposit for $7,500, how much more could the bank be able to lend out as a result of this deposit? | ||||||
| f. If the Simpson National Bank is located in Salisbury, Maryland, which district is it in and what regional bank oversees the Simpson National Bank? | ||||||
| Simpson National Bank Balance Sheet | ||||||
| Assets: | Liabilities: | |||||
| Cash Reserves: | Deposits: | |||||
| Vault Cash | $ 5,000 | Currency | $ 55,000 | |||
| Deposit with Federal Reserve | $ 17,000 | |||||
| Loans: | ||||||
| Mortgage Loans | $ 84,000 | Demand/Checkable Deposits | $ 30,000 | |||
| Business Loans | $ 165,000 | Savings Accounts Deposits | $ 95,000 | |||
| Personal Loans | $ 29,000 | Money Market Deposits | $ 120,000 | |||
| TOTAL LOANS OUTSTANDING | $ 278,000 | |||||
| TOTAL ASSETS: | $ 300,000 | TOTAL LIABILITIES: | $ 300,000 | |||
| 2. Suppose that the bank decides to keep TWICE as much in reserves than what is required by law (6 points) | ||||||
| a. What is the new reserve ratio? | ||||||
| b. What is the new reserve total, including the additional demand deposit of $7,500? | ||||||
| c. What is the new value of the money multiplier? | ||||||
| 3. If the Federal Reserve wants to contract (decrease) the Money Supply, what would it do to each of the following to accomplish it's goal? (3 points) | ||||||
| a. Open Market Operations | Buy or Sell? | |||||
| b. Required Reserve Ratio | Raise or Lower? | |||||
| c. Discount Rate | Raise or Lower? | |||||
| 4. Using the original numbers from the Simpson National Bank, calculate M1 and M2 (5 points) | ||||||
| M1 = | ||||||
| M2 = M1 + | ||||||
