Households Deposit the $20,000 at "Firstbank." Initially, let's say they have zero capital. Suppose banks hold 5% of deposits in reserve, making loans with the rest. Fill in the follow- ing table. Second Bank's Balance Sheet Assets Reserves: Loans & Investments: (a) Did the money supply increase? (b) If so, by how much? Liabilities & Capital Deposits: Capital:

Households Deposit the $20,000 at "Firstbank." Initially, let's say they have zero capital. Suppose banks hold 5% of deposits in reserve, making loans with the rest. Fill in the follow- ing table. Second Bank's Balance Sheet Assets Reserves: Loans & Investments: (a) Did the money supply increase? (b) If so, by how much? Liabilities & Capital Deposits: Capital:

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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You take Rs. 400 you had kept under your mattress and deposit it in your bank account. If this Rs. 400 stays in the banking system as reserves and if banks hold reserves equal to 10 percent of deposits, By how much does the total amount of deposits in the banking system increase?Blank 1(Please write only numbers in the blank. Do not write commas or currency signs in the blank)By how much does the money supply increase?Blank 2(Please write only numbers in the blank. Do not write commas or currency signs in the blank)
Banks in New Transylvania have a desired reserve ratio of 10 percent of deposits and noexcess reserves. The currency drain ratio is 50 percent of deposits. Now suppose that thecentral bank increases the monetary base by $900 billion.i. How much do the banks lend in the first round of the money creation process?ii. How much of the initial amount loaned flows back to the banking system as newdeposits?iii. How much of the initial amount loaned does not return to the banks but is heldas currency?iv. Why does a second round of lending occur?v. Calculate money multiplier in this example?vi. What is the final increase in the quantity of money?
n the table below, the money supply, defined by M3, is equal to ........ Currency held by the non-bank public ($ billion) Current deposits at banks ($, billion) Other deposits at banks and other deposits held by other deposit -taking institutions ($, billion) 60 240 1500 Select one: a. 1200 billion b. 1800 billion c. 1500 billion d. 1740 billion
Which of the following represents an action by the central bank designed to decrease the money supply? Select one: a. a decrease in the required reserve ratio O b. buying government securities an increase in the discount rate C. d. a increase in tax rates
2A. What is the net worth of the people’s bank? 2b.What is the required ratio? 2c.What are the people’s bank excess reserves? 2d. That arts the total loans of the people’s bank? 2e. Based on your answer in 2b computer money multiplier. 2f. Suppose a depositor comes to the bank and withdraw $2000 in cash. How much money supply will be reduced in the economy?
How does the private banking system create money (use M1 as the definition of money supply)? (Private banks are the ones like you, your family, and your friends do their banking at.) Group of answer choices A) The private banking system cannot create money. B) Minting coins. C) Lending a fraction of their deposits. D) Printing and distributing paper money. E) Buying government bonds.
In an economy, the banks prefer to keep 25% of their deposits in reserve. The population likes to keep their currency holdings equal to 10% of the deposits. Initially, there was zero money in the economy. Then the central bank buys $120 worth of T-bills from a household. The household receives $120 on its checking account. 1. the commercial bank formed reserves and gave out a loan. The population allocated the lent funds between the currency in pockets and checkable accounts. Before anything else happens, how much money is there in the economy at the end of Round 1? ANSWER: 288 For question 1 How is this answer obtained?, How would you solve question 2. 2. In Round 2, more lending, borrowing, and reserve formation takes place. How much is in DEPOSITS in the economy at the end of Round 2?
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