C D A 4.6 Monetary Policy Practice - from MyAP Videos The central bank buys $3,000 worth of bonds in the open market from JMH Bank. The banking system has limited reserves, and the required ratio is 20%. (a) Immediately, after the central bank's open market bond purchase, will JMH Bank's liabilities increase, decrease, or remain the same? Explain. (b) By what amount will JMH Bank's reserves change before any new loans are made? Explain. (c) As a result of the central bank's open-market purchase of bonds, what is the dollar value of the maximum amount of new loans JMH Bank can make? Explain. (d) Calculate the maximum amount by which the money supply can change throughout the banking system. Show your work. (e) How will the change in the money supply in part (d) affect consumption spending and real GDP in the short run? Explain. 1 .2 fou Banks liabilities Stay the same as a bond purchase will increace both Liabilities + Assets therefore the Net change on liabilities is o = 5 J B Bank reserves will increace by $ $3000 because the increace in JMH Banks researves is equal to the purchase 20% --=5 20% dasturas 5 x 3000 = 15000 so Maximum Amount of new loans JMHS Bank can Make is 1500 = 5 5 x 3,000 = 15000 $15,000
C D A 4.6 Monetary Policy Practice - from MyAP Videos The central bank buys $3,000 worth of bonds in the open market from JMH Bank. The banking system has limited reserves, and the required ratio is 20%. (a) Immediately, after the central bank's open market bond purchase, will JMH Bank's liabilities increase, decrease, or remain the same? Explain. (b) By what amount will JMH Bank's reserves change before any new loans are made? Explain. (c) As a result of the central bank's open-market purchase of bonds, what is the dollar value of the maximum amount of new loans JMH Bank can make? Explain. (d) Calculate the maximum amount by which the money supply can change throughout the banking system. Show your work. (e) How will the change in the money supply in part (d) affect consumption spending and real GDP in the short run? Explain. 1 .2 fou Banks liabilities Stay the same as a bond purchase will increace both Liabilities + Assets therefore the Net change on liabilities is o = 5 J B Bank reserves will increace by $ $3000 because the increace in JMH Banks researves is equal to the purchase 20% --=5 20% dasturas 5 x 3000 = 15000 so Maximum Amount of new loans JMHS Bank can Make is 1500 = 5 5 x 3,000 = 15000 $15,000
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Question
Transcribed Image Text:C
D
A
4.6 Monetary Policy Practice - from MyAP Videos
The central bank buys $3,000 worth of bonds in the open market from JMH Bank. The banking system has limited reserves, and the required
ratio is 20%.
(a) Immediately, after the central bank's open market bond purchase, will JMH Bank's liabilities increase, decrease, or remain the same?
Explain.
(b) By what amount will JMH Bank's reserves change before any new loans are made? Explain.
(c) As a result of the central bank's open-market purchase of bonds, what is the dollar value of the maximum amount of new loans JMH Bank
can make? Explain.
(d) Calculate the maximum amount by which the money supply can change throughout the banking system. Show your work.
(e) How will the change in the money supply in part (d) affect consumption spending and real GDP in the short run? Explain.
1
.2
fou
Banks liabilities Stay the same as a bond purchase will increace
both Liabilities + Assets therefore the Net change on liabilities
is o
= 5
J
B Bank reserves will increace by $ $3000 because the increace
in JMH Banks researves is equal to the purchase
20%
--=5
20%
dasturas
5 x 3000 = 15000 so Maximum Amount of new loans
JMHS Bank can Make is 1500
= 5
5 x 3,000 = 15000
$15,000
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