As a result of the Fed's sale of $3,000 worth of government securities to First Main Street Bank, the bank becomes reserve deficient.Suppose that Nick, a First Main Street Bank's customer, re-pays back the $3,000 loan he took out a few months ago.STEP: 2 of 3Which of the following most accurately describes First Main Street Bank's actions?The bank keeps the $3,000 as reserves.The bank creates a $42,000 loan.The bank keeps the $450 as reserves.The bank creates a $3,000 loan.The money supply in the economy is $

The central bank manages the supply of money in the economy via monetary tools such as adjustments…

As a result of the Fed's sale of $3,000 worth of government securities to First Main Street Bank, the bank becomes reserve deficient. Suppose that Nick, a First Main Street Bank's customer, re-pays back the $3,000 loan he took out a few months ago. Which of the following most accurately describes First Main Street Bank's actions? The bank keeps the $3,000 as reserves. The bank creates a $42,000 loan. The bank keeps the $450 as reserves. The bank creates a $3,000 loan. The money supply in the economy is $

As a result of the Fed's sale of $3,000 worth of government securities to First Main Street Bank, the bank becomes reserve deficient. Suppose that Nick, a First Main Street Bank's customer, re-pays back the $3,000 loan he took out a few months ago. Which of the following most accurately describes First Main Street Bank's actions? The bank keeps the $3,000 as reserves. The bank creates a $42,000 loan. The bank keeps the $450 as reserves. The bank creates a $3,000 loan. The money supply in the economy 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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Suppose the reserve requirement is 19%, banks hold no excess reserves, and there are no additional currency holdings. For each of the following scenarios, find the change in deposits, reserves, and loans for each bank. Instructions: Round your answers to two decimal places. a. Mickey receives his paycheck of $2,400 for the week and deposits the check at First Bank. Use the table below to show the change in assets and liabilities at First Bank resulting from this transaction. Assets Change in Reserves: $ Change in Loans: $ b. Suppose that Austin gets a loan from First Bank in the amount from the "Loans" cell in the table in part a, and uses it to buy some Jewelry from Jenny. Jenny takes the money from Austin and deposits it at Second Bank. Use the table below to show the change in assets and liabilities at Second Bank resulting from this transaction. Assets Change in Reserves: $ Change in Loans: $ Liabilities Change in Deposits: $ Assets Change in Reserves: $ Change in Loans: $…
Q. 2 Consider a small economy. Suppose that currency in circulation is $200 million, the amount of chequable deposits is $1000 million, and excess reserve holding is $60 million and desired reserve holding ratio is 10%. a) How much money does the economy have? b) How much is its monetary base? c) How much is its money multiplier? 1.5P 1.5P 2P d) If the central bank (CB) conducts an open market purchase of $50 million with an LVTS participant and hence its monetary base (MB) changes accordingly, how much money created in its 1st step, 2nd step and 3rd step of the money creation process for the MB change? And, how much total money created in the end for the MB change?
Assume that the required reserve ratio is 7.00%, that banks do not keep excess reserves, and that all the money loaned out from Bank Uno is deposited into Bank Duo (whose loans go to other banks not shown here). Bank Uno has $2,167 in reserves and $2,167 in deposits. Once the lending and depositing process is complete, what will Bank Uno have in reserves, loans, and deposits?
Suppose the reserve ratio of all banks is 11.7% and no money is kept in the form of currency outside banks. If the Bank of Canada purchases for 180 dollars worth of bonds from commercial banks, the money supply will increase by how much in the long run? Express your answer in dollars rounded to the nearest second decimal.
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 (Percent) 20 10 Simple Money Multiplier A higher reserve requirement is associated with a Money Supply (Dollars) 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%, the Fed will use open-market operations to $ worth of U.S. government bonds. Now, suppose that, rather than immediately lending out all…
Challenge Problem. The chapter mentions that an open market operation by the Fed can increase or decrease the quantity of deposits in banks and therefore the money supply. The change in the money supply from a Fed open market operation is given by the following equation: Change in money supply = Change in reserves x1/ (RR+ ER) where RR = the percentage of deposits that banks are required to keep as reserves ER = the percentage of deposits that banks voluntarily hold as excess reserves 1/ (RR+ ER) = the "money multiplier" Suppose the Fed decides to sell $16 billion in Treasury bonds. Assume that the reserve requirement is 10 percent, banks hold 3 percent in excess reserves, and the public holds no cash. This action by the Fed causes the money supply to by S billion. (Round your response to two decimal places.)
Assume that banks hold no excess reserves and that all currency is deposited into the banking system. If the required reserve ratio is 10.00%, and the Federal Reserve wants to increase the money supply by $60.00 million, the Fed would need to make an open market purchase of $ million. (Insert your answer in millions, and round to two decimal places.) Assume that banks hold no excess reserves and that all currency is deposited into the banking system. If the required reserve ratio is 5.00%, and the Federal Reserve wants to decrease the money supply by $70.00 million, the Fed would need to make an open market sale of $ million. (Insert your answer in millions, and round to two decimal places.) Suppose that banks decide to hold excess reserves. In order for the Federal Reserve to change the money supply by the same amounts as in parts 1 and 2, it would need to make Choose one: A. a smaller open market purchase but a larger open market sale. B. a larger open market purchase but a smaller…
One effect of the September 11, 2001, terrorist attacks was to temporarily prevent banks from accessing reserves they needed to meet the demands of their customers. (This occurred because the attacks destroyed many records as well as the computers required to access backup records, and it took affected banks several weeks to become fully operational.) In response, the Fed made many billions of dollars of reserves available to banks, gradually withdrawing the new reserves from the banking system as that system returned to normal. Suppose the Fed had not injected reserves in this way. What would likely have happened to interest rates as a result? What would have been the likely impact on the stock market and on spending by consumers and businesses? Would the unemployment rate have gone up or down? Explain your reasoning in each case.
Assume the required reserve ratio is 10 percent. If the Federal Reserve buys $10 million in government securities from the public, then the money supply will immediately: Multiple Choice increase by $10 million, and the maximum money-lending potential of the commercial banking system will increase by $100 million. increase by $10 million, but the maximum money-lending potential of the commercial banking system will decrease by $10 million. decrease by $10 million, and the money-lending potential of the commercial banking system will decrease by $100 million increase by $10 million, and the maximum money-lending potential of the commercial banking system will increase by $10 million.
Complete the following table to show the effect of a new deposit on excess and required reserves when the required reserve ratio is 20%. 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) 750,000 Now, suppose First Main Street Bank loans out all of its new excess reserves to Kate, who immediately uses the funds to write a check to Hubert. Hubert deposits the funds immediately into his checking account at Second Republic Bank. Then Second Republic Bank lends out all of its new excess reserves to Shen, who writes a check to Poornima, who deposits the money into her account at Third Fidelity Bank. Third Fidelity lends out all of its new excess reserves to Valerie in turn. Fill in the following table to show the effect of this ongoing chain of events at each bank. Enter each answer to the nearest dollar. Increase in Deposits Increase in Required Reserves…
If Jason deposits $2,500 into his bank and the reserve ratio is 11%, what would be the amount of excess reserves that are immediately created? $30.25 $244.75 $275 $1,980.25 $2,225
Suppose that the T-account for The Open Campus National Bank (OCNB) is as follows: Assets Liabilities Reserves $2,000 Loans 7,000 Deposits $9,000 If the central bank requires banks to hold 5% of deposits as reserves, how much in excess reserves does OCNB now hold? If OCNB decides to reduce its reserves to only the required amount, by how much would the economy’s money supply increase?