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Chapter 15: Q.4 (page 410)

If a bank depositor withdraws$1000 of currency from an account, what happens to reserves, checkable deposits, and the monetary base?

Short Answer

Expert verified

The monetary base will be unchanged.

Step by step solution

01

Concept Introduction

The monetary base (or M0) is the aggregate sum of cash that is either widely accepted in the possession of the general population or as business bank stores held in the national bank's stores.

02

Explanation

Total reserves and checking deposits will both reduce by $1,000 while money outside of banks will increment by $1,000. Since money outside of banks ascends by the very sum that concluded reserves decline, the financial base will be unaltered.

03

Final Answer

Total reserves and checking deposits will both decrease by $1000. The monetary base will be unchanged.

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Most popular questions from this chapter

Go to the St. Louis Federal Reserve FRED database, and find the most current data available on Currency (CURRNS), Total Checkable Deposits (TCDNS), Total Reserves (RESBALNS), and Required Reserves (RESBALREQ).

  1. Calculate the value of the currency deposit ratio c.
  2. Use RESBALNS and RESBALREQ to calculate the amount of excess reserves, and then calculate the value of the excess reserve ratio e. Be sure the units of total and required reserves are the same when you do the calculations.
  3. Assuming a required reserve ratio rr of 11%, calculate the value of the money multiplier m.

Suppose the Fed buys $1million of bonds from the First National Bank. If the First National Bank and all other banks use the resulting increase in reserves to purchase securities only and not to make loans, what will happen to checkable deposits?

17. For the following operations, what happens to the central bank's and commercial bank's reserves and the monetary base? Use T-account to show changes in balances. Assume that the amount is $10million.

a. The central bank provides loan to commercial bank.

b. The central bank sells securities to the commercial bank.

c. The commercial bank repays the loan to the central bank.

Go to http://www.federalreserve.gov/boarddocs/hh/

and find the most recent monetary policy report of the

Federal Reserve. Read the first two parts of the report,

which summarizes Monetary Policy and the Economic

Outlook. Write a one-page summary of each of these

parts of the report.

If the Fed sells $2million of bonds to the First National Bank, what happens to reserves and the monetary base? Use T-accounts to explain your answer.
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