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ECB Bank is a commercial bank in Country A. The T-account of ECB Bank is shown below: A. Liabilities Assets (millions) (millions) Deposits $100,000 $200,000 Reserves $100,000 Loans i. If the commercial banks in Country A are required to maintain a reserve ratio of 8%, how much excess reserves are now held by ECB Bank? i. If ECB Bank decides not to hold excess reserves, by how much will the economy's money supply increase or decrease? Explain. iii. Assume the Central Bank of Country A requires a reserve ratio of 8% and banks in Country B. A do not hold excess reserves currently. If the Central Bank now has a target to increase the economy's money supply by $4,000 i. million, what amount of bonds will the government need to buy or sell? ii. Assume the Central Bank conducts the open-market operations, state one situation that might cause the increase in the economy's money supply to be lower than the Central Bank's target?

ECB Bank is a commercial bank in Country A. The T-account of ECB Bank is shown below: A. Liabilities Assets (millions) (millions) Deposits $100,000 $200,000 Reserves $100,000 Loans i. If the commercial banks in Country A are required to maintain a reserve ratio of 8%, how much excess reserves are now held by ECB Bank? i. If ECB Bank decides not to hold excess reserves, by how much will the economy's money supply increase or decrease? Explain. iii. Assume the Central Bank of Country A requires a reserve ratio of 8% and banks in Country B. A do not hold excess reserves currently. If the Central Bank now has a target to increase the economy's money supply by $4,000 i. million, what amount of bonds will the government need to buy or sell? ii. Assume the Central Bank conducts the open-market operations, state one situation that might cause the increase in the economy's money supply to be lower than the Central Bank's target?

ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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  1. ECB Bank is a commercial bank in Country A. The T-account of ECB Bank is shown below:
  2. Assume the Central Bank of Country A requires a reserve ratio of 8% and banks in Country A do not hold excess reserves currently.
ECB Bank is a commercial bank in Country A. The T-account of ECB Bank is shown below: A. Liabilities Assets (millions) (millions) Deposits $100,000 $200,000 Reserves $100,000 Loans i. If the commercial banks in Country A are required to maintain a reserve ratio of 8%, how much excess reserves are now held by ECB Bank? i. If ECB Bank decides not to hold excess reserves, by how much will the economy's money supply increase or decrease? Explain. iii. Assume the Central Bank of Country A requires a reserve ratio of 8% and banks in Country B. A do not hold excess reserves currently. If the Central Bank now has a target to increase the economy's money supply by $4,000 i. million, what amount of bonds will the government need to buy or sell? ii. Assume the Central Bank conducts the open-market operations, state one situation that might cause the increase in the economy's money supply to be lower than the Central Bank's target?
Transcribed Image Text:ECB Bank is a commercial bank in Country A. The T-account of ECB Bank is shown below: A. Liabilities Assets (millions) (millions) Deposits $100,000 $200,000 Reserves $100,000 Loans i. If the commercial banks in Country A are required to maintain a reserve ratio of 8%, how much excess reserves are now held by ECB Bank? i. If ECB Bank decides not to hold excess reserves, by how much will the economy's money supply increase or decrease? Explain. iii. Assume the Central Bank of Country A requires a reserve ratio of 8% and banks in Country B. A do not hold excess reserves currently. If the Central Bank now has a target to increase the economy's money supply by $4,000 i. million, what amount of bonds will the government need to buy or sell? ii. Assume the Central Bank conducts the open-market operations, state one situation that might cause the increase in the economy's money supply to be lower than the Central Bank's target?
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