1. Beleaguered State Bank (BSB) holds $200,000,000 in deposits and maintains a reserve ratio of
10%, which also is the reserve requirement. On paper, write the T account for BSB and use it to
answer the rest of this question. Now suppose that BSB's largest depositor withdraws
$10,000,000 from her account one day. On paper, show the effect of this on the T account. How
many dollars of cash reserves does BSB need to raise to be allowed to open for business the
next morning?
$9,000,000 in cash reserves would be needed for the business to open the next day
2. Banks have a reserve ratio of 10%, and households deposit all cash into the banking system.
How many dollars should the Fed print in order to increase the money supply by $20,000,000?
the Fed should print $2,000,000 in order to increase the money supply by $20,000,000.
3. What would the Federal Reserve do if its goal is to decrease the money supply? selling
securities, raising interest rates, or raising the reserve requirement ratio
The Federal Reserve conducts a $10,000,000 open market purchase of government bonds. The reserve
requirement is 5%
4. What is the largest possible increase in the money supply that could result?the largest possible
increase in the money supply that could result from the open market purchase is $200,000,000.
5. What is the smallest possible increase in the money supply that could result? the smallest
possible increase in the money supply that could result from the open market purchase is
$190,000,000.
The economy of Auburnia has 100,000 $1 bills.
6. If people hold all money as currency, how many dollars is the quantity of money? 100,000
7. If people hold all money as demand deposits and banks maintain 100% reserves, how many
dollars is the quantity of money? 100,000
8. If people hold equal amounts of currency and demand deposits and banks maintain 100%
reserves, how many dollars is the quantity of money? 200,000
9. If people hold deposit all their money into banks, and banks keep a 10% reserve ratio, how many
dollars is the quantity of money? 2,000
10. Who sets monetary policy in the United States of America? The federal reserve
11. Give an example of using something other than currency as a medium of exchange. food
12. Give an example of using something other than currency as a store of value. gold
13. Give an example of using something other than currency as a unit of account.
14. Why can something other than U.S. dollars not be used as a standard of deferred payment in this
country? Because of government and banking regulations
