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Wed 11 May, 2016 08:53 am
So I need help solving a two part question, I believe I solved the 1st part correctly but need help with the effects of the 2nd part... Here it goes:
Suppose the following conditions exist in the economy...
Demand deposits & other checkable depossits = $2,000 billion.
Currency held by the public = $500 billion.
The Fed Reserve requires 3% of deposits below $50 million must be held as reserves while reserve requirement on deposits above $50 million is 10%. Initially $600 billion is subject to 3% reserve requirement and the remaining $1,400 billion is subject to 10% reserve requirement.
Total reserves = $250 billion.
A) Calculate the initial values of the variables listed
B) Suppose the public increases its currency holding from $500 billion to $600 billion by withdrawing an addition $100 billion from their demand deposit accounts. Assume that the withdrawals reduce demand deposits subject to the 3% reserve requirement by $40 billion and the deposits subject to the 10% reserve requirement by $60 billion. Calculate the effects of this change on the variables.
Answers I think I know are correct, but feel free to double check...:
A)
Currency Ratio (C/D)= .25
Total Reserves= $250 billion
Required Reserves= $158 billion
Excess Reserves= $92 billion
Required Reserves Ratio= .079
Excess Reserves Ratio= .046
Money Multiplier= 3.3333...
Monetary Base= $750 billion
Money Supply= $2,500 billion
B)
Currency Ratio (C/D)= .316
Total Reserves= ???
Required Reserves= $150.8 billion
Excess Reserves= ???
Required Reserves Ratio= .079
Excess Reserves Ratio= ???
Money Multiplier= ???
Monetary Base= ???
Money Supply= $2,500 billion