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

E2. As the executive of a bank or thrift institution, you are faced with an intense seasonal demand for loans. Assuming that your loanable funds are inadequate to take care of the demand, how might your Reserve Bank help you with this problem?

P1. Assume that Banc One receives a primary deposit of \$1 million. The bank must keep reserves of 20 percent against its deposits. Prepare a simple balance sheet of assets and liabilities for Banc One immediately after the deposit is received.

P6. Assume a financial system has a monetary base (MB) of \$25 million. The required reserves ratio is 10 percent, and no leakages are in the system.

1. What is the size of the money multiplier (m)?
2. What will be the system’s money supply?

• Go tohttp://sffed-education.org/chairman. Use the Learn More button and review the tight  (contractionary) and easy (expansionary) tools of the Fed as well as the use of each. Briefly examine the Economic Dictionary and the Policy in Depth features.
• Now play the game! You are the Fed Chairperson! You begin with 16 quarters, 4 years, then your job is up for review. You begin with rates at 4.5, inflation at  2.14% and unemployment at 4.75%.
• Make decisions on interest rates for the 16 quarters. Summarize the changes you chose and explain your results. Do you still have a job? Why or why not?

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