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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?

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?

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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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.
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
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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