Question 1

Suppose the currency drain is 20 ratio percent and the desired reserve ratio is 10 percent.
a.What does the money multiplier equal?
b.If the Fed purchases $10 million of U.S.government securities,by how much will the quantity of money increase or decrease?

Accepted Answer

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Question 2

The Fed conducts an open market operation and increases a bank's excess reserves by $2,000.Explain the first five rounds of the money creation process if the desired reserve ratio is 25 percent and if people keep no currency outside of the banking system.

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Question 3

Explain how the currency drain ratio affects the size of the money multiplier.In your explanation,suppose that in one round of the money creation process a bank gains $1 million in new deposits and reserves.Further suppose that the desired reserve ratio is 10 percent and the currency drain ratio is 50 percent.

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Question 4

If the currency drain ratio is 40 percent and the desired reserve ratio is 15 percent,what does the money multiplier equal?

Accepted Answer

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Question 5

The Fed purchases $100,000 of U.S.government securities from One Bank.Assuming the desired reserve ratio is 10 percent,banks loan all excess reserves,and the currency drain is 20 percent,how much does the quantity of money increase?

Accepted Answer

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Question 6

Suppose the Fed conducts an open market operation in which it buys government securities from a commercial bank.Why is there a multiplier effect on the quantity of money?

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Question 7

How does a currency drain affect the money multiplier?

Accepted Answer

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Question 8

What is a "currency drain"? How and why does it affect the money multiplier?

Accepted Answer

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Question 9

If the currency drain ratio increases,how can the Fed adjust the monetary base to offset the effect on the quantity of money?

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Question 10

"If the currency drain ratio increases,the monetary base decreases." Explain whether the previous statement is correct or incorrect.

Accepted Answer

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Quiz 18: Money and the Monetary System

Suppose the currency drain is 20 ratio percent and the desired reserve ratio is 10 percent. a.What does the money multiplier equal? b.If the Fed purchases $10 million of U.S.government securities,by how much will the quantity of money increase or decrease?