Q11-The balance sheet of a hypothetical bank, ABC Bank, is shown below.

The reserve
requirement is 10%.
ABC Bank
Assets Liabilities
Vault Cash $90 Deposits $900
Deposits at the Fed 10
Loans 800
In the balance sheet above, the excess reserve ratio of ABC bank is _________ and its
excess reserves are _________.
Answer
the total actual reserves =Vault cash +deposits at fed
=90+10=100
required reserves =deposits *reserve ratio=900*0.1=90
excess reserves =actual reserves -required reserves
=100-90
=$10
excess reserve ratio=excess reserves /deposits
=10/900
=0.0111111111
=0.011

Option C
the excess reserve ratio is 0.011 and excess reserves is $10

Q14-Reserves that the Fed requires banks to hold is called required reserves while any additional
reserves the banks choose to hold are known as excess reserves.

Q28-An open market sale of $100 of government security the nonbank public results to
reduction in checkable deposits in the Nonbank Public's T-account.
An open market sale of securities lowers the monetary base.
Q42-If the Fed buys $1 million of bonds from the First National Bank, but an additional 10% of
any deposit is held as excess reserves, what is the total increase in checkable deposits? Assume
that the required reserve ratio on checkable deposits is 10% and the public's holdings of currency
do not change.
Answer - checkable deposits increase by $5 million
Assuming that there is a 10% reserve ratio, then holding 10% excess reserves will lead to 20% of
total deposits being held in reserve.
money multiplier = 1 / reserve required
So, money multiplier = 1/0.2 = 5 times
As a result, multiple deposit creation will turn $1 million of reserves into $5 million of deposit

Q43-Assume that the required reserve ratio on checkable deposits is 10% and the public's
holdings of currency do not change. If reserves in the banking system increase by $1 billion as a
result of discount loans of $1 billion, and checkable deposits increase by $9 billion, why isn't the
banking system in equilibrium? Show the T-account for the banking system in equilibrium.

There are $100 million of excess reserves that banks will seek to lend out.

Q45-If the required reserve ratio on checkable deposits increases to 20%, how much multiple
deposit creation will take place when reserves are increased by $100? Assume that banks do not
hold any excess reserves and the public's holdings of currency do not change.
Multiple deposit creation = 100 / 20 %
= 100 / 0.20 = $ 500.
Q47-(a)Which of the following players can affect the money supply by its holdings of currency
versus currency versus deposits question mark deposits? Depositors.
(b)Which of the following players can affect the money supply by issuing loans to financial
institutions The central bank.
Q67-The money multiplier declined significantly during the period 1930-1933 and also during
the recent financial crisis of 2008-2010. Yet the M1 money supply decreased by 25% in the
Depression period but increased by more than 20% during the recent financial crisis. What
explains the difference in outcomes?
There was a significant increase in the monetary base during the recent financial crisis.
The difference is that the monetary base increased dramatically during the recent financial
crisis, which was more than enough to offset the fall in the multiplier. During the Great
Depression, the monetary base rose modestly, if at all.

Q68- Suppose that the required reserve ratio is 8%, currency in circulation is $620 billion, the
amount of checkable deposits is $880 billion, and excess reserves are $17 billion.
The money supply is $1500 (Round your response to the nearest whole number.)
(a) currency in circulation+ checkable deposits 620+880=1500
(b)The currency deposit ratio is 0.7045=0.705
currency in circulation/ checkable deposits 620/880=0.7045
(c) Excess reserve ratio=excess reserves/checkable deposits=17/880=0.019
The money multiplier is (1+currency deposit ratio)/(required reserve ratio+ excess reserves
ratio+ currency deposit ratio)=(1+0.705)/(8%+0.019+0.705)=1.705/0.804=2.12

(b) Suppose the central bank conducts an unusually large open market purchase of bonds held by
banks of $ 1450 billion due to a sharp contraction in the economy. Assuming the ratios you
calculated in the previous steps are the same, the money supply should
Money base =currency in circulation+ (RRR x checkable deposits) +excess reserves + purchase
of bonds
=620 +(8% x 880) + 17+1450=2157
Money supply= 2155 x the money multiplier
=2157x 2.12= 4573.68=4573 increase
(c)Suppose the central bank conducts the same open market purchase as in the previous step,
except that banks choose to hold all of these proceeds as excess reserves rather than loan them
out, due to fear of a financial crisis.
Assuming that currency and deposits remain the same, the new amount of excess reserves is $
excess reserves = $17+$1450=$1467
excess reserve ratio=$1467/$880=1.667=1.67
money supply=$620+ $880=$1500B
monetary base=$620+$1450+($88B*8%)=$2140.40
money multiplier= money supply/monetary base=1500/2140=0.700

Q70-Suppose that:
r = required reserve ratio = 0.15
c = {C/D} = currency ratio = 0.45
e = {ER/D} = excess reserve ratio = 0.05
MB = the monetary base = $3000 billion
Given that the formula for the money multiplier is (1+c) / r+ c+ e, find the value for M, the
money supply. 1.45/0.65=2.230769, 2.230769 x 3000=6692 The money supply is $ 6692
billion.
Use the money multiplier to find the new value for the money supply if open market operations
increase the monetary base by $100 billion. (3000+100) =3100, 3100 x 2.230769=6915
The money supply is now 6915

Q 73-Suppose that:
r = required reserve ratio = 0.15
c = {C/D} = currency ratio = 0.25
e = {ER/D} = excess reserves ratio = 0.05
t = {T/D} = time deposit ratio = 2
mm = {MM/D} = money market fund ratio = 0.60
MB = the monetary base = $1,000 billion
Given that the formula for the M2 money multiplier is m2= (1+c+t+mm) /r+ e+ c, find the value
for the M2 money supply. 3.85/0.45=8.555556 x 1,000=8,556
Use the M2 money multiplier to find the new value for the money supply if open market
operations increase the monetary base by $200 billion. 200+1,000= 1200 x 8.555556=12,267
The M2 money supply is now $ 12,267
Q77-Suppose that the Federal Reserve System set the required reserve ratio equal to 0.1and that
the banking system holds $80 billion in excess reserves. If the amount of deposits is $1000
billion and the amount of currency holdings is $50 billion, then the currency ratio is 0.05
Total amount of currency holdings = $50 billion
Total amount of deposits = $1000 billion
Calculate the currency ratio -
Currency ratio = Total amount of currency holdings/Total amount of deposits
Currency ratio = $50 billion/$1000 billion = 0.05
The currency ratio is 0.05.
The Excess Reserve ratio is 0.08
The equation for the excess reserves ratio is given by e=ER/D=80/1000=0.08
          where e = excess reserves ratio
          ER = amount of excess reserves
          D = checkable deposits
Q78- (b)Suppose the required reserve ratio is 0.12, the currency ratio is 0.6, and the excess
reserves ratio is 0.03. If the Fed decreases the monetary base by $5 billion, the money supply
will fall by 10.67 $5 billion * 2.133 = $10.67 billion
Money Multiplier (m) = (1 + 0.6) / (0.12 + 0.03 + 0.6) = 1.6 / 0.75 = 2.133