Explanation all subparts it correctly 7.0%6.5%6.0%5.5%5.0%4.5%4.0%3.5%3.0%2.5%2.0%1.5%1.0%0.5%0.0%$0 $10 $20 $30 $40 $50 $60 570 580 590 $100 $110 $120 $130 $140 $150 $160Bank Excess Reserves ($Billion)Consider the above graph that shows demand for excess reserves by the bankingsystem as a whole. The discount rate is 4.5 percent and the Fed pays an interest of1.50 percent on excess reserves. Currently banks as a whole are holding an excessreserve of $70 billion.Let's consider several monetary-policy scenarios.The Fed reduces the discount rate by 1 percent. Following this policy, the equilibriumfederal funds rate will equal 4.00percent.Next, the Fed reduces the discount rate by another 1 percent. Following this secondpolicy action, the equilibrium federal funds rate will equal 5.00percent. However, to keep the fed funds rate at this level, the Fed needs to increasethe supply of excess reserves in the banking system by 40.00billiondollars (say, through an open market purchase).Okay, this scenario rarely happens. So let's move to the next one.Federal Funds Rate

The Federal Reserve System (or the Fed) is the central bank and money-related power of the United…

Answered: (Coal 091S OSTS OPTS OETS ORTS OUTS 00S…

(Coal 091S OSTS OPTS OETS ORTS OUTS 00S 0S 0S 0S 0S 0SS ONS DES O2S ots of 0.0% %50 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0% 4.5% 5.0% 5.5% 6.0% 6.5% 7.0% Federal Funds Rate

ECON MICRO

5th Edition

ISBN:9781337000536

Author:William A. McEachern

Publisher:William A. McEachern

Chapter13: Capital, Interest, Entrepreneurship, And Corporate Finance

Section: Chapter Questions

Problem 4.8P

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Question

Explanation all subparts it correctly

7.0%
6.5%
6.0%
5.5%
5.0%
4.5%
4.0%
3.5%
3.0%
2.5%
2.0%
1.5%
1.0%
0.5%
0.0%
$0 $10 $20 $30 $40 $50 $60 570 580 590 $100 $110 $120 $130 $140 $150 $160
Bank Excess Reserves ($Billion)
Consider the above graph that shows demand for excess reserves by the banking
system as a whole. The discount rate is 4.5 percent and the Fed pays an interest of
1.50 percent on excess reserves. Currently banks as a whole are holding an excess
reserve of $70 billion.
Let's consider several monetary-policy scenarios.
The Fed reduces the discount rate by 1 percent. Following this policy, the equilibrium
federal funds rate will equal 4.00
percent.
Next, the Fed reduces the discount rate by another 1 percent. Following this second
policy action, the equilibrium federal funds rate will equal 5.00
percent. However, to keep the fed funds rate at this level, the Fed needs to increase
the supply of excess reserves in the banking system by 40.00
billion
dollars (say, through an open market purchase).
Okay, this scenario rarely happens. So let's move to the next one.
Federal Funds Rate

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Round Deposits Required Reserves of 20% Excess Reserves New Loans 50% of loan proceeds are held as currency in circulation by people Loan proceeds redeposited 1 $500 $100.00 $400.00 $400.00 $200.00 $200.00 2 $200 $40 $160 $160 $80 $80 3 $80 $16 $64 $64 $32 $32 4 $32 $6.40 $25.60 $25.60 $12.80 $12.80 5 $12.80 $2.56 $10.24 $10.24 $5.12 $5.12 6 $5.12 $1.02 $4.10 $4.10 $2.05 $2.05 7 $2.05 $.41 $1.64 $1.64 $.82 $.82 8 $.82 $.16 $.66 $.66 $.33 $.33 9 $.33 $.07 $.26 $.26 $.13 $.13 10 $.13 $.03 $.10 $.10 $.05 $.05 Totals $833.25 $166.65 $666.60 $666.60 $333.30 $333.30 Calculate the new money supply. Calculate the money multiplier.
5
Assume that Atlantic National Bank has demand deposits of $100,000 and no excess reserves, and that the reserve requirement is 10 percent. A customer withdraws $5,000 from the bank. To meet the reserve requirement, the bank must increase its reserves by (A) $500 (B) $1,000 (C) $2,000 (D) $4,000 E $4,500
Deposits equal Balance Sheet ASSETS Reserves (Required) $ 50,000 Loans Reserve Ratio $30,000. $250,000. $300,000. TABLE 1 $500,000. 10% LIABILITIES Deposits
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First National Bank Assets Liabilities and Net Worth US Treasury Bonds $450,000 Net Worth $500,000 Reserves (Cash) $175,000 Checkable Deposits $250,000 Loans $125,000 Second National Bank Assets Liabilities and Net Worth US Treasury Bonds $100,000 Net Worth $250,000 Reserves (Cash) $250,000 Checkable Deposits $100,000 Third National Bank Liabilities and Net Worth Assets US Treasury Bonds $900,000 Net Worth $1,000,000 Reserves (Cash) $350,000 Checkable Deposits $500,000 Loans $250,000 The required reserve ratio is 25% for all banks. Second National Bank is capable of loaning $ (Do NOT enter the '$' in your response. Enter a whole dollar amount; do NOT enter cents.) to its customers. Blank 1
First National Bank Liabilities and Net Worth Assets US Treasury Bonds $450,000 Net Worth $500,000 Reserves (Cash) $175,000 Checkable Deposits $250,000 Loans $125,000 Second National Bank Assets Liabilities and Net Worth US Treasury Bonds $100,000 Net Worth $250,000 Reserves (Cash) $250,000 Checkable Deposits $100,000 Third National Bank Assets Liabilities and Net Worth US Treasury Bonds $900,000 Net Worth $1,000,000 Reserves (Cash) $350,000 Checkable Deposits $500,000 Loans $250,000 The Required Reserve Ratio is 25% for all banks. Rob, who banks at Third National, writes a check in the amount of $100,000 to Darrin, a First National customer, who deposits the check in-full into his checking account. List which balance sheet entries at each bank change and what their new values are.
First National Bank Assets Liabilities and Net Worth US Treasury Bonds $450,000 Net Worth $500,000 Reserves (Cash) $175,000 Checkable Deposits $250,000 Loans $125,000 Second National Bank Assets Liabilities and Net Worth US Treasury Bonds $100,000 Net Worth $250,000 Reserves (Cash) $250,000 Checkable Deposits $100,000 Third National Bank Assets Liabilities and Net Worth US Treasury Bonds $900,000 Net Worth $1,000,000 Reserves (Cash) $350,000 Checkable Deposits $500,000 Loans $250,000The Required Reserve Ratio is 25% for all banks. Assuming that all the customers that have outstanding loans have used all of those additional funds to invest in new machinery for their businesses (therefore, the amount of Checkable Deposits is the true liability the bank has to its customers), then $_____________ is the resulting change to the loan creating potential of the whole system (these three banks) as a result of Second National Bank customers depositing an additional $400,000 in their Checkable…
34. Bankers have a reputation for conservatism in politics, dress, and business affairs. Is there an economic rationale for this conservatism? Explain.
Define what financial instisutions are and give examples to explain your understanding
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