1. A new bank has vault cash of $1 million and $5 million in deposits held at its Federal Reserve District Bank.

a. If the required reserves ratio is 8 percent, what dollar amount of deposits can the bank have?

b. If the bank holds $65 million in deposits and currently holds bank reserves such that excess reserves are zero, what required reserves ratio is implied?

3. A bank has $110 million in deposits and holds $10 million in vault cash.

a. If the required reserves ratio is 10 percent, what dollar amount of reserves must be held at the Reserve Bank?

b. How would your answer in Part (a) change if the required reserves ratio was increased to 12 percent?

5. The Friendly National Bank holds $50 million in reserves at its Federal Reserve District Bank. The required reserves ratio is 12 percent.

a. If the bank has $600 million in deposits, what amount of vault cash would be needed for the bank to be in compliance with the required reserves ratio?

b. If the bank holds $10 million in vault cash, determine the required reserves ratio that would be needed for the bank to avoid a reserves defi cit.

c. If the Friendly National Bank experiences a required reserves defi cit, what actions can it take to be in compliance with the existing required reserves ratio?

5. The SIMPLEX fi nancial system is characterized by a required reserves ratio of 11 percent; initial excess reserves are $1 million, and there are no currency or other leakages.

a. What would be the maximum amount of checkable deposits after deposit expansion, and what would be the money multiplier?

b. How would your answer in (a) change if the reserve requirement had been 9 percent?

6. Assume a fi nancial system has a monetary base (MB) of $25 million. The required reserves ratio is 10 percent, and no leakages are in the system.

a. What is the size of the money multiplier (m)?

b. What will be the system’s money supply?

8. The BASIC fi nancial system has a required reserves ratio of 15 percent; initial excess reserves are $5 million, cash held by the public is $1 million and is expected to stay at that level, and no other leakages

or adjustments are in the system.

a. What would be the money multiplier and the maximum amount of checkable deposits?

b. What would be the money supply amount in this system after deposit expansion?

10. The COMPLEX fi nancial system has these relationships: The ratio of reserves to total deposits is 12 percent, and the ratio of noncheckable deposits to checkable deposits is 40 percent. In addition, currency held by the nonbank public amounts to 15 percent of checkable deposits. The ratio of government deposits to checkable deposits is 8 percent, and the monetary base is $300 million.

a. Determine the size of the M1 money multiplier and the size of the money supply.

b. If the ratio of currency in circulation to checkable deposits were to drop to 13 percent while the other ratios remained the same, what would be the impact on the money supply?

c. If the ratio of government deposits to checkable deposits increases to 10 percent while the other ratios remained the same, what would be the impact on the money supply?

d. What would happen to the money supply if the reserve requirement increased to 14 percent while noncheckable deposits to checkable deposits fell to 35 percent? Assume the other ratios remain as originally stated.

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