Calculations for Money multiplier and Finding M1 and M2.
1. State whether the following is a component of M1, M2, both, or neither.
a.Savings deposits.
b.Available credit on a credit card.
c. Checking account balance accessible by an ATM card.
d. Cash in your pocket.
2. A single bank's balance sheet is shown below. The reserve requirement is 0.2.
| Assets |
Liabilities and Net Worth |
| Reserves |
$20,000 |
Checking Deposits |
$75,000 |
| Loans |
60,000 |
Net Worth |
30,000 |
| Total |
105,000 |
Total |
105,000 |
a. Illustrate what is the amount the bank is required to keep as reserves?
b.What are excess reserves?
c. What is the money multiplier?
d. If this were the only bank and it decided not to keep any excess reserves, how much more money will be created in the economy? (Assume people hold no cash.)
3. Compute the simple money multiplier given the following reserve requirements.
a. 10%.
b. 25%
c. 75%