11. Assume the following
information about the banking system

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Question: 11. Assume the following information about the banking system Quantities in billions of dollars&…
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Quantities in billions of
dollars                       

                             

Currency (C) =
$762                               

Excess Reserves ( R ) =
$66

Required reserves (RR0 =
$0                                 

Checking deposits (D ) =
$604           

Give the numerical answer
to the following questions:

a. What is the size of the
monetary base?

b. What is the money
supply in the economy?

c. What is the size of the
money multiplier?

Assume that the currency
to deposit ratio rises to 1.5

a. Compute the effect of
the change in currency to deposit ratio on the money
multiplier, m

b. What will happen to the
money supply given the monetary base?

c. If the Fed wants to
keep the money supply at the initial level, how must the Fed adjust
the monetary base? Explain

d. What open market
operations should the Fed conduct to adjust the monetary base to
keep the money supply at the initial level?

e. By how much must the
Fed adjust the monetary base to keep the money supply at its
initial level?

f. How much must the Fed
buy or sell in the government bonds to keep the money supply at the
initial level?

12. Assume that the MB =
$828, Money supply = $1366 and thel money multiplier

m= 1.650. The non-bank
public shifts $40B currency to deposits and the Fed wishes to keep
the money supply at the level of $1366 B. Explain verbally and show
numerically the following:

a. What will happen to the
level of reserves in the banking system?

b. What will happen to the
monetary base?

c. What will happen to the
money multiplier?

d. By how much will the
money supply increase or decrease as the result of the non-bank
public action?

e. How should the Fed
respond given his goal of keeping the money supply at the initial
level? Explain

f. What open market
operations should the Fed conduct to adjust the monetary base and
keep the money supply constant? Explain

g. How much in the
government bonds should the Fed buy or sell to keep the money
supply constant?

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