If all banks in America were member banks, explain why the Federal Reserve could be certain that the federal funds rate fell between the deposit rate and the discount rate?
If all banks in America were member banks, explain why the Federal Reserve could be certain that the federal funds rate fell between the deposit rate and the discount rate?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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![If all banks in America were member banks, explain why the Federal Reserve could be certain that the federal funds rate fell between the deposit rate and the discount rate?
O A. The Federal Reserve can exercise great control over member banks and would be able to mandate that the federal funds rate fall between the deposit rate and the discount rate.
O B. Given all banks are member banks, there would be no incentive to lend at a rate lower than the deposit rate or to borrow at a rate higher than the discount rate.
Oc. Given member banks determine the federal funds rate through the interaction of supply and demand, the Federal Reserve cannot keep the federal funds rate fall between the deposit rate and the discount rate.
In Figure 23-3, the federal funds rate falls slightly below the deposit rate. Explain, using the balance sheet below for a non-member bank, how this would happen. Non-member banks hold part of their required reserves as deposits at member
banks.
Non-member bank
Assets (billions, $)
Liablities (billions, $)
Currency 50
Checkable deposits 500
Deposits at member
bank 20
Loans 330
Bonds 100
O A. This non-member bank is short reserves and may be able to borrow them at a rate lower than the deposit rate if there are a lot of non-member banks holding excess reserves but few non-member banks looking to borrow reserves.
O B
This non-member bank is short reserves and may be able to borrow them at a rate lower than the deposit rate if there are only a few non-member banks holding excess reserves but many non-member banks looking to borrow reserves.
O c. This non-member bank is holding excess reserves and may agree to lend them at a rate lower than the deposit rate if there are a lot of non-member banks holding excess reserves but few non-member banks looking to borrow reserves.
O D. This non-member bank is holding excess reserves and may agree to lend them at a rate lower than the deposit rate if there are only a few non-member banks holding excess reserves but many non-member banks looking to borrow
reserves.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fb029ca17-5cf0-49a9-a8e5-fb135d5317ec%2F7901c35f-0034-40e1-8af9-868f9c8daf89%2Fthhp2i_processed.jpeg&w=3840&q=75)
Transcribed Image Text:If all banks in America were member banks, explain why the Federal Reserve could be certain that the federal funds rate fell between the deposit rate and the discount rate?
O A. The Federal Reserve can exercise great control over member banks and would be able to mandate that the federal funds rate fall between the deposit rate and the discount rate.
O B. Given all banks are member banks, there would be no incentive to lend at a rate lower than the deposit rate or to borrow at a rate higher than the discount rate.
Oc. Given member banks determine the federal funds rate through the interaction of supply and demand, the Federal Reserve cannot keep the federal funds rate fall between the deposit rate and the discount rate.
In Figure 23-3, the federal funds rate falls slightly below the deposit rate. Explain, using the balance sheet below for a non-member bank, how this would happen. Non-member banks hold part of their required reserves as deposits at member
banks.
Non-member bank
Assets (billions, $)
Liablities (billions, $)
Currency 50
Checkable deposits 500
Deposits at member
bank 20
Loans 330
Bonds 100
O A. This non-member bank is short reserves and may be able to borrow them at a rate lower than the deposit rate if there are a lot of non-member banks holding excess reserves but few non-member banks looking to borrow reserves.
O B
This non-member bank is short reserves and may be able to borrow them at a rate lower than the deposit rate if there are only a few non-member banks holding excess reserves but many non-member banks looking to borrow reserves.
O c. This non-member bank is holding excess reserves and may agree to lend them at a rate lower than the deposit rate if there are a lot of non-member banks holding excess reserves but few non-member banks looking to borrow reserves.
O D. This non-member bank is holding excess reserves and may agree to lend them at a rate lower than the deposit rate if there are only a few non-member banks holding excess reserves but many non-member banks looking to borrow
reserves.
![If the reserve ratio is 10% and a member bank that can place funds on deposit at the Federal Reserve has the balance
sheet below, does this bank have excess reserves?
Bank
Assets (billions, $)
Liablities (billion:
Currency 60
Deposits at Fed 50
Checkable deposi
No
Loans 600
Yes
Bonds 290
If the deposit rate is 0.5% and the federal funds rate is 0.4%, what is the profit-maximizing choice for the overnight placement of reserves for the member bank?
O A. deposit 10 billion at the Federal Reserve
O B. make one day loans of 10 billion at the federal funds rate
OC. borrow 10 billion at the federal funds rate
O D. borrow 10 billion from the Federal Reserve
If the reserve ratio is 10% and a member bank that can place funds on deposit at the Federal Reserve has the balance sheet below, does this bank have excess reserves?
Bank
Assets (billions, $)
Liablities (billions, $)
Currency 30
Checkable deposits 1000
Deposits at Fed 50
Loans 600
Bonds 320
If the discount rate is 0.75% and the federal funds rate is 0.8%, what is the profit-maximizing choice for the overnight placement of reserves for the member bank?
O A. borrow 20 billion from the discount window
O B. lend 20 billion at the federal funds rate
OC. borrow 20 billion at the federal funds rate
O D. lend 20 billion to the discount window](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fb029ca17-5cf0-49a9-a8e5-fb135d5317ec%2F7901c35f-0034-40e1-8af9-868f9c8daf89%2F0iq2go_processed.png&w=3840&q=75)
Transcribed Image Text:If the reserve ratio is 10% and a member bank that can place funds on deposit at the Federal Reserve has the balance
sheet below, does this bank have excess reserves?
Bank
Assets (billions, $)
Liablities (billion:
Currency 60
Deposits at Fed 50
Checkable deposi
No
Loans 600
Yes
Bonds 290
If the deposit rate is 0.5% and the federal funds rate is 0.4%, what is the profit-maximizing choice for the overnight placement of reserves for the member bank?
O A. deposit 10 billion at the Federal Reserve
O B. make one day loans of 10 billion at the federal funds rate
OC. borrow 10 billion at the federal funds rate
O D. borrow 10 billion from the Federal Reserve
If the reserve ratio is 10% and a member bank that can place funds on deposit at the Federal Reserve has the balance sheet below, does this bank have excess reserves?
Bank
Assets (billions, $)
Liablities (billions, $)
Currency 30
Checkable deposits 1000
Deposits at Fed 50
Loans 600
Bonds 320
If the discount rate is 0.75% and the federal funds rate is 0.8%, what is the profit-maximizing choice for the overnight placement of reserves for the member bank?
O A. borrow 20 billion from the discount window
O B. lend 20 billion at the federal funds rate
OC. borrow 20 billion at the federal funds rate
O D. lend 20 billion to the discount window
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