a) Briefly explain the open market operation by the central bank with T account.b) Briefly explain the multiple deposit creation model with T account and its limitations.

Solution : Open market operations refers to the sale and purchase of securities in the open market…

Answered: a) Briefly explain the open market…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Transaction One: Open a Bank and Accept Deposits Name your Bank Draw a T-Account Representing Deposits of $2 million Transaction Two: Grant a Loan The Reserve Requirement is 20% Customer A wants to borrow $1 million. Customer B wants to borrow $400,000. Customer C wants to borrow $300,000. Can you fulfill all three loan requests? Draw a T-Account Representing a bank that is fully “loaned up” (reduce the loan amount to Customer C if necessary) Transaction Three: Follow the Money Creation Process Customer A deposits his loan with his home bank, Bank of Taylor Draw a T-Account Representing this transaction for Bank of Taylor assuming they already have $1.5 million in deposits and loans in the amount of $700,000 Transaction Four: Calculate the Money Creation Effect What is the money multiplier rate in this example? If banks in this economy are always fully loaned up, calculate how much money was created in this economy from the original three loans made by your bank (the amount that…
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a) Briefly explain the open market operation by the central bank with T account. b) Briefly explain the multiple deposit creation model with T account and its limitations.