Bank A lends $8 million to bank B so that bank B can maintain its required reserve: Suppose required reserve ratio is 3%. a. As the result will total money supply in the banking system Increase/decrease/remains the same? b. Explain your answer to part a. Bank B borrows $2,500,000 from the Fed, all of which is loaned out through the banking system. Required reserve ratio is still set at 3%. c. As the result will total money supply in the banking system Increase/decrease/remains the same? d. If money supply does change, by how much will it change?

Bank A lends $8 million to bank B so that bank B can maintain its required reserve: Suppose required reserve ratio is 3%. a. As the result will total money supply in the banking system Increase/decrease/remains the same? b. Explain your answer to part a. Bank B borrows $2,500,000 from the Fed, all of which is loaned out through the banking system. Required reserve ratio is still set at 3%. c. As the result will total money supply in the banking system Increase/decrease/remains the same? d. If money supply does change, by how much will it change?

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 that in a certain month, the year-over-year growth rate of M1 in the United States fell to 5.6%, while the growth rate of M2 rose to 10.2%. A few years later, the year-over-year growth rate of the M1 money supply was 6.3%, while the growth rate of the M2 money supply was about 8.5%. How should Federal Reserve policymakers interpret these changes in the growth rates of M1 and M2? (Select all that apply.) A. The United States economy must be experiencing hyperinflation. ☐ B. In this period, different courses of monetary policy action might be deemed appropriate depending on what measure of money is used. ☐ C. Americans must be holding more currency outside of banks. ☐ D. The growth rates of M1 and M2 moved in opposite directions. ☐ E. The Federal Reserve's methods of measuring money supply growth are most likely flawed in some way, since it is nearly impossible for both of these changes to happen at the same time.
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.
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Need help with this question. Thank you 4. If the Required Reserve Ratio (RRR) is 1/10, all banks except one have no excess reserves to start with, one bank has $10,000 in initial excess reserves, what is the maximum amount by which the banking system as a whole may increase the money supply (assuming all excess reserves are lent out (this is a money multiplier question)?
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…
Big bucks bank Assets Liabilities Total reserves $30mm demand deposits $190mm Loans $100mm Bonds $100mm Stockholder equity $40 mm Suppose the required reserve ratio is 10%. What is the maximum amount of money Big buck bank can create? If the reserve ratio is increased to 14%, what is the maximum amount of money BBB can create? 3 If the reserve ratio is still at 10% and BBB chose to buy bonds instead of making loans with its excess reserves, what is the maximum amount of money BBB can create? a) From question #1 & #3, if the prospective Loans and Bonds both paid interest of 6.8%, which strategy would be more profitable for BBB? b) If BBB decided to pursue #1 as a strategy, what is the maximum money making potential of the banking…
What is the defining difference among our various measures of money supply, such as M1 and M2? The defining difference is origin, whether the money is issued by the Federal Reserve Bank or the Federal Government The defining difference is liquidity, how quickly the instrument could be turned to cash and expended The defining difference is regulation, how much control the Federal Reserve Bank has over the relative amounts of M1 or M2 in circulation The defining difference is function, whether the money is used to meet transactions demand or asset demand
A bank currently has $100 million checkable deposits, $4 million in reserves, and $8 million in securities. If the required reserve ratio is 10 percent, is the bank meeting its legal reserve requirements? Explain.
When a banking system hold some excess reserves to anticipate withdrawals or some uncertainties, and the public held some cash at home rather than depositing it in a bank, the money multiplier will be: a)equals to: 1 divided by the required reserve ratio b)more than: 1 divided by the required reserve ratio c)less than: 1 divided by the required reserve ratio d)none of the above Gold-backed money: a)uses more gold resources than does the commodity money such as gold coins b)has no intrinsic value but the value is guaranteed that it can be converted into gold at certain price c) is a way to provide the functions of money without tying up its value to gold d)none of the above
Suppose that National Bank of Guerneville has $31 million in checkable deposits, Commonwealth Bank has $43 million in checkable deposits, and the required reserve ratio for checkable deposits is 10%. If National Bank of Guerneville has $4 million in reserves and Commonwealth has $5 million in reserves, how much in excess reserves does each bank have? (Enter your answers rounded to one decimal place.) National Bank of Guerneville has $ 0.9 million in excess reserves. Commonwealth Bank has $ 0.7 million in excess reserves. Now suppose that a customer of National Bank of Guerneville writes a check for $1 million to a real estate broker who deposits the check at Commonwealth. After the check clears, how much in excess reserves does each bank have? National Bank of Guerneville has $0 million in excess reserves. Commonwealth Bank has $ million in excess reserves.
Helen deposits $10,000 of currency into her checking account deposit at Bank A and that the required reserve ratio is 20%. As a result of her deposit, Bank A can make a maximum loan of ____ . Checking account deposits in the banking system as a whole (including the original deposit) could eventually increase up to _____ . Select one: a. $10,000 , $100,000. b. $2,000 , $10,000. c. $8,000 , $50,000. d. $50,000 , $100,000. e. $9,000 , $40,000.
The reserve requirement, open market operations, and the moneysupply 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 $300. 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) 5 (0.5, 1, 5, 10 or 20) (150, 300, 1500, 3000 or 6000) 10 (0.5, 1, 5, 10 or 20) (150, 300, 1500, 3000 or 6000) A higher reserve requirement is associated with a (LARGER or SMALLER) money supply. Suppose the Federal Reserve wants to increase the money supply by $200. Maintain the assumption that banks do not…