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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%

 

Business Economics, Economics

  • Category:- Business Economics
  • Reference No.:- M922644

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