Assume that the Federal Reserve (Fed) sets the federal funds rate target at 4% and conducts open market operations to hit the 4% target. Shift the appropriate curve to show the Fed meeting its target. Federal funds rate 10 9 8 7- 6- 2 1 0 0 10 20 Supply of reserves Federal funds rate (target) Federal funds rale (current) 30 40 50 60 Reserves at the Fed 70 80 The Federal Reserve 90 raised the discount rate. lowered the discount rate. sold U.S. Treasury securities. O bought U.S. Treasury securities. Demand for reserves 100

Assume that the Federal Reserve (Fed) sets the federal funds rate target at 4% and conducts open market operations to hit the 4% target. Shift the appropriate curve to show the Fed meeting its target. Federal funds rate 10 9 8 7- 6- 2 1 0 0 10 20 Supply of reserves Federal funds rate (target) Federal funds rale (current) 30 40 50 60 Reserves at the Fed 70 80 The Federal Reserve 90 raised the discount rate. lowered the discount rate. sold U.S. Treasury securities. O bought U.S. Treasury securities. Demand for reserves 100

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 bank expects interest rates to rise which would impact the value of theirgovernment bonds. Suppose the price of the 10 year Treasury bonds is expected tochange by 6%. Would this cause a problem for the bank? Why or why not?
Figure 3: MSo MS1 Interest Rate (%) 10% 8% 6% MD 100 200 Money (S million) 26. Refer to Figure 3. The money supply curve will shift from MS. to MS1, if: a) the Fed increases the reserve requirement. b) the price level increases. c) the equilibrium level of output decreases. d) the Fed buys U.S. government bonds in the open market.
The bank starts with $600 in bank capital. It then accepts $9,400 in deposits. The reserve requirement is 18%, and the bank decides to keep an extra 7% of deposits as excess reserves. The bank uses the rest of the assets to provide loans. a) Show the balance sheet of the bank. Find the leverage ratio. b) Suppose the bank's largest depositor withdraws $1,400. The bank decides to restore its reserve ratio by reducing the amount of loans. Show the new balance sheet of the bank. Find the new leverage ratio. c) Why might it be difficult for the bank to take this action? Describe another way the bank can return to its original reserve ratio. d) Following the events of part (b), the borrowers defaulted on 5% of loans from the bank. So, these loans become worthless, and bank capital is used to adjust for this event. Show the new balance sheet of the bank. Find the new leverage ratio.
Problem 14-09 algo POLICY PERSPECTIVES If the price level increases by 0.2 percent for every $100 billion increase in the money supply, by how much might prices rise if the Fed increases total reserves by $200 billion and the reserve requirement is 0.20? Instructions: Round your response to two decimal places. 2 %
Refer to Table A. The Fed would have to increase the reserve requirement to what percentage for this bank to have no excess reserves? A) 20% B) 18.6% C) 12.1% D) 16.67%
Problem 3 The current Discount Rate is 0.5%. The current Federal Funds Rate is 0.5%. The interest paid on Excess Reserves is 0.25%. Nonborrowed Reserves are $3.848tn. a) Using this information, carefully construct a channel system graph of the current market for Nonborrowed Reserves. b) What is happening to the Federal Funds Rate? c) Why do you think this is?
The table below shows information for United Bank. Deposits Reserves Reserve Requirement $300 million $33 million 10% 37 Which of the following statements is true concerning United Bank in the federal funds market? Multiple Choice United Bank will lend $3 million reserves in the federal funds market. United Bank will borrow $30 million reserves in the federal funds market. United Bank will lend $33 million reserves in the federal funds market. United Bank will borrow $3 million reserves in the federal funds market. # % &
Suppose the reserve requirement is 8% and a new deposit of $900 billion is made into the banking system. Create T accounts to analyze the following questions. a) Initially, reserves would increase by? b) Required reserves would increase by? c) Excess reserves would increase by? d) The first round of loans would amount to? e) The second round of loans would amount to approximately? f) The third round of loans would amount to approximately? g) For the entire macroeconomy, after the infinite rounds of loans were taken into account, money supply would increase by? h) If the Federal Reserve bought bonds worth $600 billion, money supply would increase by? i) If the Federal Reserve sold bonds worth $600 billion, money supply would decrease by?
Suppose that a bank does the following: a. Sets a loan rate on a prospective loan with BR = 8.04% and ϕ = 4.15%. b. Charges a 0.26 percent loan origination fee to the borrower. c. Imposes a 14 percent compensating balance requirement to be held as noninterest-bearing demand deposits. d. Holds reserve requirements of 9 percent imposed by the Federal Reserve on the bank’s demand deposits. Calculate the bank’s ROA on this loan. Note: Convert your answer to percentage format. Enter your answer rounded to 2 decimals, and without any units. So, for example, if your answer is 3.4568%, then just enter 3.46.
5. If reserves are scarce, how would the federal funds rate change (increase or decrease) if the Fed: 1) sells mortgage-backed securities 2) decreases the (minimum) reserve requirements 3) conducts overnight repo operations 4) conducts overnight reverse repo operations
4) Listen If the money multiplier decreased from 20 to 4, then the Fed increased the reserve ratio from 5 percent to 8 percent. the Fed increased the fed funds rate from 5 percent to 8 percent. the Fed increased the reserve ratio from 5 percent to 25 percent. the Fed decreased the fed funds rate from 8 percent to 5 percent. Question 30 (1 point) )Listen The FOMC is able to increase the money supply when it buys US government securities. The increase will be larger, the larger is the reserve ratio. buys US government securities. The increase will be larger, the smaller is the reserve ratio. sells US government securities. The increase will be larger, the smaller is the reserve ratio. sells US government securities. The increase will be larger, the larger is the reserve ratio.