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

| November 9, 2018

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 system’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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