7. Critical analysis Q16 Suppose that the Federal Reserve purchases a bond for $300,000 from Reggie Rich, who deposits the proceeds in the Manufacturer's National Bank. Initially, as a result of this bond purchase, the money supply will Suppose the required reserve ratio is 25%. As the result of Rich's deposit, Manufacturer's Bank will be able to extend $ by s in additional loans. As a result of this purchase by the Fed, the maximum increase in the quantity of checkable deposits that could result throughout the entire banking system is $

7. Critical analysis Q16 Suppose that the Federal Reserve purchases a bond for $300,000 from Reggie Rich, who deposits the proceeds in the Manufacturer's National Bank. Initially, as a result of this bond purchase, the money supply will Suppose the required reserve ratio is 25%. As the result of Rich's deposit, Manufacturer's Bank will be able to extend $ by s in additional loans. As a result of this purchase by the Fed, the maximum increase in the quantity of checkable deposits that could result throughout the entire banking system is $

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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2. Suppose that in 2018 customers deposit $4,000 into their bank accounts. Based on the extended money multiplier calculated in part (1), calculate the total amount which the money supply in the banking system will eventually increase to. Show all steps involved in the calculation. part 1 answer DRR = Ratio (4% or 0.04) CDR = % of money in wallets (3% or 0.03) = (1 + 0.03) / (0.04 + 0.03) = 1.03 / 0.07 Answer = 14.71 Therefor Every $1 in the bank will allow the bank to create $14.71
6) What are the three monetary policy tools of the Fed? Briefly describe how each tool can be used to implement an expansionary monetary policy and a contractionary monetary policy.
8. Consider a hypothetical economy with a nominal GDP of $1.2 trillion, real GDP of $600 billion, and money supply of $60 billion. Suppose commercial banks are required to maintain a reserve requirement of 10% of deposits. Assume that banks do not hold excess reserves. a) Calculate the money multiplier for this economy. If the central bank buys $1 billion of government bonds, what is the effect on money supply? Show your work. b) Using the quantity theory of money, calculate the price level and the velocity of money for this economy prior to central bank action. Show your work. c) Assume that velocity is constant and real GDP increases by 2% each year. What will happen to nominal GDP and the price level next year if money supply does not change? Show your work. d) In (c), what money supply should the central bank set next year to keep the price level unchanged? Show your work. e) In (c), what money supply should the central bank set next year if it wants inflation of 5%? Show your…
The following graph shows a hypothetical demand function for federal funds . Currently , the total amount of reserves in the banking system is $ 50 billion , the discount rate is 3.5 percent , and interest on reserves equals IOR = 1 percent . If the Fed reduces the discount rate to 3.00 percent , the equilibrium federal funds rate ( FFR ) will equal : O a . FFR 3.00% O b . FFR = 2.50% O c . FFR = 2.00% O d . FFR 1.50% O e . None of the above.
Question 10 What is the purpose of gap analysis and duration analysis? O The purpose of both analysis is to determine the bank's sensitivity to interest rate movements. O The purpose of both analysis is to determine the bank's sensitivity to the liquidity risk. ● The purpose of gap analysis is to determine the bank's sensitivity to the liquidity risk, whereas the purpose of duration analysis is to determine the bank's sensitivity to interest rate movements. The purpose of gap analysis is to determine the bank's sensitivity to interest rate movements, whereas the purpose of duration analysis is to determine the bank's sensitivity to the liquidity risk.
131.) Assume prices and wages are flexible. That is, they will change substantially in the short-run. What will happen to prices and output, respectively, in the short-run if the central bank increases the required reserve to deposit ratio? decrease, decrease decrease, unchanged unchanged, decrease unchanged, increase
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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%.
4. [A Monetary Surprise] Consider an economy in which the demand for money is of the form M₁ = = P₁Y for t = 0, 1,2,..., where output is 150, the money velocity is 1.5. The money supply is 100 for t = 0, 1. In period 2, the central bank surprises people and announce that money supply will grow at 2 percent forever, that is, Mo = 100, M₁ = 100, M₂ = (1.02) M₁, M3 (1.02) M₂, and so on. (a) What is the inflation rate in period 1, 7? What is real money balance in period 1, ? What is the expected inflation in period 2, given the information available in period 1, E172? (b) What is the inflation rate in period 2, m₂? What is real money balance in period 2, 2? What is expected inflation in period 3, given the informa- tion available in period 2, E273? (c) What is the inflation rate in period 3, 73? What is real money balance in period 2, ? (d) Compare E₁₂ and 7₂. B
. A well-known bank has specialized in adjustable-rate mortgages. They have originated 7 billion USD in adjustable-rate mortgages. This bank generally raises money by borrowing with shorter term loans and issuing fixed-interest rate Certificates of Deposit. The bank has 6 billion in short-term adjustable-rate loans to partly help fund the loan portfolio. The federal reserve has announced an increase in their target interest rate of 50 basis points (0.5%). What is the equation and solution.
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