1. Suppose that the reserve requirement against deposits is 0%, but that cautious banks voluntarily hold 5% of their deposits in reserve, just in case and that people hold no currency-all money is held in the form of checking deposits. a. Suppose that the Federal Reserve purchases $30,000 worth of government bonds from Ellen (a private citizen), and that Ellen deposits all of the proceeds from the sale into her checking account at Z Bank. Construct a balance sheet, with assets on the left and liabilities on the right, to show how Ellen's deposit creates new assets and liabilities for Z Bank. b. How much of this new deposit can Z Bank lend out? Assume that it lends this amount to George, who then deposits the entire amount into his account at Y Bank. Show this on Y Bank's balance sheet. c. How much of this new deposit can Y Bank lend out? Suppose Joe takes out a lo for this amount from Y Bank and deposits the money into his account at X Bank

1. Suppose that the reserve requirement against deposits is 0%, but that cautious banks voluntarily hold 5% of their deposits in reserve, just in case and that people hold no currency-all money is held in the form of checking deposits. a. Suppose that the Federal Reserve purchases $30,000 worth of government bonds from Ellen (a private citizen), and that Ellen deposits all of the proceeds from the sale into her checking account at Z Bank. Construct a balance sheet, with assets on the left and liabilities on the right, to show how Ellen's deposit creates new assets and liabilities for Z Bank. b. How much of this new deposit can Z Bank lend out? Assume that it lends this amount to George, who then deposits the entire amount into his account at Y Bank. Show this on Y Bank's balance sheet. c. How much of this new deposit can Y Bank lend out? Suppose Joe takes out a lo for this amount from Y Bank and deposits the money into his account at X Bank

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

See similar textbooks

Similar questions

Refer to Figure 11.3. If the demand for money curve will shift from Md1 to Md0, the equilibrium interest rate will Group of answer choices increase from 5% to 7%. decrease from 7% to 5%. increase from 5% to 10%. remain at 7%.
Suppose that a bank holds $15m in treasury bonds $10m in reserves $30m of checkable deposits $20m of time deposits $6m of capital How much loan does the bank have if we know it doesn't have any other assets or liabilities Suppose that checkable deposits and reserves pay 0 interest The interest rate on treasuries is 3% The loan pays 7% Time deposits pay 5% How much profit does the bank make? What is the bank's return on assets? 3.2% 2.9% 3.7% 2.6%
4
Explain which interest rate sets the upper limit on the federal funds rate. The upper limit on the federal funds rate is the _______ because _______. A. discount rate; the discount rate must be 1 percent higher than the federal funds rate B. interest on reserves rate; a bank will borrow reserves only if the federal funds rate is less than the interest on reserves rate C. discount rate; a bank will borrow reserves only if the federal funds rate is less than the discount rate D. long-term real interest rate; the loanable funds market determines the federal funds rate range
7. The money creation process Suppose First Main Street Bank, Second Republic Bank, and Third Fidelity Bank all have zero excess reserves. The required reserve ratio is 10%. Hubert, a client of First Main Street Bank, deposits $500,000 into his checking account at First Main Street Bank. Complete the following table to reflect any changes in First Main Street Bank's T-account (before the bank makes any new loans). Assets Liabilities Complete the following table to show the effect of a new deposit on excess and required reserves when the required reserve ratio is 10%. Hint: If the change is negative, be sure to enter the value as negative number. Amount Deposited Change in Excess Reserves Change in Required Reserves (Dollars) (Dollars) (Dollars) 500,000 Now, suppose First Main Street Bank loans out all of its new excess reserves to Eileen, who immediately uses the funds to write a check to Clancy. Clancy…
Suppose the reserve requirement is 8% and a new deposit of $900 billion is made into the banking system. Create T accounts to analyze the following questions. a) Initially, reserves would increase by? b) Required reserves would increase by? c) Excess reserves would increase by? d) The first round of loans would amount to? e) The second round of loans would amount to approximately? f) The third round of loans would amount to approximately? g) For the entire macroeconomy, after the infinite rounds of loans were taken into account, money supply would increase by? h) If the Federal Reserve bought bonds worth $600 billion, money supply would increase by? i) If the Federal Reserve sold bonds worth $600 billion, money supply would decrease by?
2. Discuss why fiat money can coexist with other assets that have higher rate of returns.
2
Suppose the Fed decided to purchase $100 billion worth of government securities in the open market. Assume all payments are directly deposited into or withdrawn from the banking system. What impact would this action have on the economy? Specifically, answer the following questions. Instructions: Enter your responses as a whole number. a. How will M1 be affected initially? O Decrease by $100 billion O Increase by $100 billion O Not enough information to answer O No initial change to M1 b. By how much will the banking system's lending capacity increase if the reserve requirement is 20 percent? $ billion c. Must interest rates rise or fall to induce investors to utilize this expanded lending capacity? O Rise O Fall d. By how much will aggregate demand initially increase if investors borrow and spend all the newly available credit? $ billion e. Under what circumstances would the Fed be pursuing such an open market policy? O Inflation O Recession f. To attain those same objectives, what…
1.If you deposit $100 in a bank account and the reserve ratio is 20 percent. a.What is the minimum amount of money banks will be required to keep in reserves? How much loans can banks make at most? What is the money multiplier? How much money can be created from $100 of reserves? b.lf the fed raises the required reserve ratio to 30 percent. What is the minimum amount of money banks will be required to keep in reserves? How much loans can banks make at most? What is the money multiplier? How much money can be created from $100 of reserves? N
John is writing a research paper and needs to know what determines the value of a bank's loans. By law, banks are permitted to lend: O their deposits O all of their reserves O their required reserves O their excess reserves « Previoùs Next » W ASUS 16 18 5 8 R
Only typed answer