i need last question Question no 3 Complete solution 1. Suppose the central bank decides to lend $2million to a particular bank (Kangaroo Bank) onthe condition that Kangaroo Bank must make an additional $2million loan to one of itscustomers.a. Show the effect this has on the balance sheets of the central bank and KangarooBank.b. If the customer uses those funds to buy a house from a person who banks withKoala Bank, show the effects this will have on the balance sheets of Kangaroo andKoala Bank.2. Suppose that, as a result of increased use of electronic payments, banks no longer need tohold as much vault cash. Banks decide to reduce their vault cash holdings by $250million.a. Show the effects this would have on the balance sheets of commercial banks andthe central bank.b. If, at the same time, depositors decide to reduce their cash holdings by $50millionby depositing that amount with their banks, show the combined effect of thesedecisions on the balance sheets of commercial banks.3. Suppose that banks aim to hold reserves equal to 8 per cent of deposits. Also suppose thatdesired holdings of currency by the non-bank public are 2 per cent of deposits. Calculate thefollowing using the money multiplier model set out in the lectures:a. The simple deposit multiplierb. The money multiplierc. If the central bank supplies an additional $50m of bank reserves, what will be theeffect on the total money supply?d. How might a financial panic affect the money multiplier and the deposit multiplier?e. How would you expect the central bank to respond in that situation?

Given Information: Reserve requirements = 8% Desired holdings of currencies = 2% Additional bank…

3. Suppose that banks aim to hold reserves equal to 8 per cent of deposits. Also suppose that desired holdings of currency by the non-bank public are 2 per cent of deposits. Calculate the following using the money multiplier model set out in the lectures: a. The simple deposit multiplier b. The money multiplier c. If the central bank supplies an additional $50m of bank reserves, what will be the effect on the total money supply?

3. Suppose that banks aim to hold reserves equal to 8 per cent of deposits. Also suppose that desired holdings of currency by the non-bank public are 2 per cent of deposits. Calculate the following using the money multiplier model set out in the lectures: a. The simple deposit multiplier b. The money multiplier c. If the central bank supplies an additional $50m of bank reserves, what will be the effect on the total money supply?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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