5. Suppose that the central bank decides to expand its balance sheet by $200bn. There are three ways it could do this: a. By lending to commercial banks b. By buying securities from commercial banks c. By buying securities directly from household investors Show how each of these actions would affect: • The balance sheets of commercial banks, the central bank and households • Bank reserves and the total money supply

5. Suppose that the central bank decides to expand its balance sheet by $200bn. There are three ways it could do this: a. By lending to commercial banks b. By buying securities from commercial banks c. By buying securities directly from household investors Show how each of these actions would affect: • The balance sheets of commercial banks, the central bank and households • Bank reserves and 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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What is the ratio of reserves to deposits that a bank finds prudent to hold? Describe the situation in which a bank has $10 million in actual reserves and $8 million in desired reserves. The ratio of reserves to deposits that a bank finds prudent to hold is its _______. When a bank has $10 million in actual reserves and $8 million in desired reserves, it has _______. A. desired deposit ratio; a shortage of deposits B. desired reserve ratio; surplus reserves C. desired reserve ratio; insufficient reserves D. planned reserve ratio; a currency drain
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Which financial innovation allows banks to avoid reserve requirements and to pay interest on deposits? A. Money market funds B. Sweep accounts C. Both money market funds and sweep accounts
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8. Study Questions and Problems #8 Suppose the Federal Reserve's trading desk buys $500,000 in T-bills from a securities dealer, who then deposits the Fed's check in Best National Bank. Assuming that the required reserve ratio is 5%, complete the following table by showing changes in Best National Bank's balance sheet. Best National Bank Assets (Dollars) Reserves: Addendum: Changes in Reserves Actual reserves Required reserves Excess reserves Liabilities (Dollars) Checking deposits: Total liabilities Consider the money multiplier. The maximum increase in the money supply that can result from this open market transaction is
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%,…
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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
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