Question 9 A. ECB Bank is a commercial bank in Country A. The T-account of ECB Bank is shown below: Assets Liabilities (millions) (millions) Reserves $100,000 Deposits $200,000 Loans $100,000 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. B: Assume the Central Bank of Country A requires a reserve ratio of 8% and banks in Country A do not hold excess reserves currently. i. If the Central Bank now has a target to increase the economy's money supply by $4,000 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?

Question 9 A. ECB Bank is a commercial bank in Country A. The T-account of ECB Bank is shown below: Assets Liabilities (millions) (millions) Reserves $100,000 Deposits $200,000 Loans $100,000 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. B: Assume the Central Bank of Country A requires a reserve ratio of 8% and banks in Country A do not hold excess reserves currently. i. If the Central Bank now has a target to increase the economy's money supply by $4,000 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

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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