# Using Excel, complete the following problems from chapters 4 and 5 in the textbook

1. A new bank has vault cash of $1 million

and $5 million in deposits

held at its Federal Reserve District Bank.

a. If the required reserves ratio is 8

percent, what dollar amount

of deposits can the bank have?

b. If the bank holds $65 million in

deposits and currently holds

bank reserves such that excess reserves are

zero, what

required reserves ratio is implied?

3. A bank has $110 million in deposits and

holds $10 million in vault

cash.

a. If the required reserves ratio is 10

percent, what dollar amount

of reserves must be held at the Reserve

Bank?

b. How would your answer in Part (a) change

if the required

reserves ratio was increased to 12 percent?

5. The Friendly National Bank holds $50

million in reserves at its

Federal Reserve District Bank. The required

reserves ratio is 12 percent.

a. If the bank has $600 million in

deposits, what amount of vault

cash would be needed for the bank to be in

compliance with

the required reserves ratio?

b. If the bank holds $10 million in vault

cash, determine the

required reserves ratio that would be

needed for the bank to

avoid a reserves defi cit.

c. If the Friendly National Bank

experiences a required reserves

defi cit, what actions can it take to be in

compliance with the

existing required reserves ratio?

5. The SIMPLEX fi nancial system is

characterized by a required

reserves ratio of 11 percent; initial

excess reserves are $1 million, and

there are no currency or other leakages.

a. What would be the maximum amount of

checkable deposits

after deposit expansion, and what would be

the money multiplier?

b. How would your answer in (a) change if

the reserve requirement

had been 9 percent?

6. Assume a fi nancial system has a

monetary base (MB) of $25

million. The required reserves ratio is 10

percent, and no leakages are

in the system.

a. What is the size of the money multiplier

(m)?

b. What will be the systemâ€™s money supply?

8. The BASIC fi nancial system has a

required reserves ratio of 15

percent; initial excess reserves are $5

million, cash held by the public

is $1 million and is expected to stay at

that level, and no other leakages

or adjustments are in the system.

a. What would be the money multiplier and

the maximum

amount of checkable deposits?

b. What would be the money supply amount in

this system after

deposit expansion?

10. The COMPLEX fi nancial system has these

relationships: The

ratio of reserves to total deposits is 12

percent, and the ratio of

noncheckable deposits to checkable deposits

is 40 percent. In addition,

currency held by the nonbank public amounts

to 15 percent of

checkable deposits. The ratio of government

deposits to checkable

deposits is 8 percent, and the monetary

base is $300 million.

a. Determine the size of the M1 money

multiplier and the size of

the money supply.

b. If the ratio of currency in circulation

to checkable deposits

were to drop to 13 percent while the other

ratios remained the

same, what would be the impact on the money

supply?

c. If the ratio of government deposits to

checkable deposits

increases to 10 percent while the other

ratios remained the

same, what would be the impact on the money

supply?

d. What would happen to the money supply if

the reserve

requirement increased to 14 percent while

noncheckable

deposits to checkable deposits fell to 35

percent? Assume the

other ratios remain as originally stated.

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