In 1989 the Government made it legal for banks to offer interest on checking accounts. Before this it was illegal because it could create increased competitiveness between banks and maybe lead to bank failures. Using only the asset market show graphically what we would expect to happen to the quantity of money and the interest rates if it became legal for banks to offer interest bearing checking accounts. What would this do to the overall economy? Why? How would the Federal Reserve (using information from class) stabilize the economy?

In 1989 the Government made it legal for banks to offer interest on checking accounts. Before this it was illegal because it could create increased competitiveness between banks and maybe lead to bank failures. Using only the asset market show graphically what we would expect to happen to the quantity of money and the interest rates if it became legal for banks to offer interest bearing checking accounts. What would this do to the overall economy? Why? How would the Federal Reserve (using information from class) stabilize the economy?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

See similar textbooks

Similar questions

A Credit Union is a bank owned by its depositors who are called members and they have something in common. Suppose that the Credit Union member share in common is that most of them work for the oil industry in a particular town in Texas. If the price of oil declines dramatically leading to mass layoffs in the oil industry then we may expect that Many Credit Union borrowers may default on their loans Many Credit Union depositors may withdraw their savings the Credit Union may face insolvency risk d. all of the above b. O O O
True or False. John agrees that “more money in the richest hands means money sitting in the bank doing nothing.”
Suppose the Federal Reserve has set the money supply at $4 million. The table below shows the interest rate and total demand for money. Interest Rate Demand (in millions) 20% $1 15 2 10 3 5 4 0 5 What is the equilibrium interest rate? Multiple Choice 0 percent 20 percent 10 percent 5 percent
In response to the recession of 2008, the US Federal Reserve Bank made several efforts to increase banks excess reserves, decrease interest rates for lending, and increase lending. These "extraordinary measures" have been somewhat controversial (at least among American politicians). What are some of the effects of these efforts and/or some of their potential future impacts?
Suppose all banks have zero excess reserves. The Fed buys bonds for $1 million and a bond dealer deposits the check in his or her bank. The required reserve ratio is 8 percent. The bank loans out the maximum it is allowed to a local business. The business writes a check for the full amount for supplies, which is then deposited in another bank. The largest loan the second bank can make is: The largest loan the second bank can make is $. (Round your answer to the nearest dollar.)
Over the last 10 years the Federal Reserve has substantially changed the way it operates. What is different about how the Federal Reserve now conducts policy? options: it discusses its policy in public and asks for guidance from Congress it gives the public forward guidance on what it will do It is more secretive about interest rate and other policy changes it places fewer regulations on commercial banks
THINKING IT OVER Describe how the Federal Reserve can use its authority to stimulate the economy. How does the Fed raising the reserve requirement affect the possibility of getting a business loan? Why is monetary policy an important part of the federal Reserve’s mission?
The interest rate is the opportunity cost of holding money. Select one: True False
In this Decision Point activity you learned about how changes to monetary policy by the Federal Reserve should impact your own decisions and the decisions of everyone across the economy. Apply what you learned in this decision point to the following questions. One of the tools the Fed uses to influence interest rates is to pay banks interest on excess reserves they hold overnight with the Fed. You're a director at a bank. Your bank currently holds $185 million in excess reserves at the regional Fed and you're earning an annual rate of 2.42% on those excess reserves sitting at the Fed. The Fed decides to decrease the interest rate it pays on excess reserves from an annual rate of 2.42% to 1.55%. In response, you should the amount of excess reserves held at the Fed and make any given interest rate. loans at
Topic: Banks and the Economy For an economy to thrive, there must be a strong banking system. If the banks fail and must be bailed out, it will have an effect on the economy. If people lose faith in the safety and security of financial institutions, what will happen to the U.S. economy? Please use at least 100 words in your response.
What were the two previous central banks the United States had before the current Federal Reserve system? When was the Federal Reserve established? How old are some other central banks in other countries? Describe in detail how the Federal Reserve is structured and explain how it is mostly independent from political interference? Using ideas like supply and demand, explain how the Federal Reserve uses open-market operations to either raise or lower interest rates at the direction of the Federal Open Market Committee (FOMC). See if you can find what the most recent decision made by the FOMC was concerning interest rates and explain how that will be reflected in its open-market operations.
The balance sheet for the newly formed ACME Bank is shown below. Reserves listed on the balance sheet are reserves on deposit at the Federal Reserve. Cash is vault cash held in the bank. Instructions: Enter your answers as a whole number. a. Fill in the missing value in the balance sheet. b. If the reserve requirement is 12 percent, how much in excess reserves is the bank holding? $