2. Consider a new deposit to the Canadian banking system of $10,000. Suppose that all commercial banks have a target reserve ratio of 20% and there is no cash drain. The following table shows how deposits, reserves, and loans change as the new deposit permits the banks to "create" money. Round. A Deposits A Reserves A Loans $10,000 $2,000 $8,000 2nd 3rd The first round has been completed in the table. Now, recalling that the new loans in the first round become the new deposits in the second round, complete the second round in the table. Then by using the same approach, complete the entire table. a. b. This deposit-creation process could go on forever, but it would still have a finite sum. The eventual total change in deposits is equal to 1/v times the new deposit, where v is the target reserve ratio. What is the eventual total change in deposits in this case? c. What is the eventual total change in reserves? (1) What is the eventual change in loans?

2. Consider a new deposit to the Canadian banking system of $10,000. Suppose that all commercial banks have a target reserve ratio of 20% and there is no cash drain. The following table shows how deposits, reserves, and loans change as the new deposit permits the banks to "create" money. Round. A Deposits A Reserves A Loans $10,000 $2,000 $8,000 2nd 3rd The first round has been completed in the table. Now, recalling that the new loans in the first round become the new deposits in the second round, complete the second round in the table. Then by using the same approach, complete the entire table. a. b. This deposit-creation process could go on forever, but it would still have a finite sum. The eventual total change in deposits is equal to 1/v times the new deposit, where v is the target reserve ratio. What is the eventual total change in deposits in this case? c. What is the eventual total change in reserves? (1) What is the eventual change in loans?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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B. Consider the following data Currency Checkable deposits Savings deposits $1,200 billion $1,500 billion $2,500 billion Banking system's reserve-to-deposit ratio is 30%. Calculate (show your werk) 1. Bank reserves = 2. Monetary base = 3. M1 money supply = %3D 4. Realistic money multiplier =
8. The reserve requirement, open market operations, and the money supply Consider a system of banking in which the Federal Reserve uses required reserves to control the money supply (as was the case in the United States before 2008). Assume that banks do not hold excess reserves and that households do not hold currency, so the only money exists in the form of demand deposits. To further simplify, assume the banking system has total reserves of $400. Determine the money multiplier as well as the money supply for each reserve requirement listed in the following table. Reserve Requirement Simple Money Multiplier Money Supply (Percent) (Dollars) 20 10 A higher reserve requirement is associated with a money supply. Suppose the Federal Reserve wants to increase the money supply by $200. Maintain the assumption that banks do not hold excess reserves and that households do not hold currency. If the reserve requirement is 10%,…
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…
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2. Consider the following data (all values are in billions of dollars): (b) Currency Transactional deposits Bank reserves June 1930 June 1931 June 1932 $ 3.681 3.995 4.959 21.612 19.888 15.490 3.227 3.307 2.829 (a) Calculate the values for each period for the currency-deposit ratio, the ratio of total reserves to deposits, the monetary base, M1, and the money multiplier. Can you explain why the currency-deposit ratio and the ratio of total reserves to deposits moved as they did between 1930 and 1932(Great depression era)?
9.
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9 If the interest rate................... opportunity cost of holding money decreases, and the quantity demanded of money increases; decreases decreases; increases £0000 increases; also increases does not change; does not change 10 If the total deposits-on-demand in Bank A total $500 mil and the required reserve ratio is 2.5 percent, then required reserves at Bank A equal more than 1,300,000,000 equal to 13,000,000 less than 13,000,000 more than 13,000,000
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