The discount rate is the interest rate on loans that the Federal Reserve makes to banks. Banks occasionally borrow from the Federal Reserve when they find themselves short on reserves. A lower discount rate increases banks' incentives to borrow reserves from the Federal Reserve, thereby increasing the quantity of reserves in the banking system and causing the money supply to The federal funds rate is the interest rate that banks charge one another for short-term (typically overnight) loans. When the Federal Reserve uses banks' need to borrow from each open-market operations to sell government bonds, the quantity of reserves in the banking system and the federal funds rate other

The discount rate is the interest rate on loans that the Federal Reserve makes to banks. Banks occasionally borrow from the Federal Reserve when they find themselves short on reserves. A lower discount rate increases banks' incentives to borrow reserves from the Federal Reserve, thereby increasing the quantity of reserves in the banking system and causing the money supply to The federal funds rate is the interest rate that banks charge one another for short-term (typically overnight) loans. When the Federal Reserve uses banks' need to borrow from each open-market operations to sell government bonds, the quantity of reserves in the banking system and the federal funds rate other

Essentials of Economics (MindTap Course List)

8th Edition

ISBN:9781337091992

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter21: The Monetary System

Section: Chapter Questions

Problem 2PA

See similar textbooks

Similar questions

Humongous Bank is the only bank in the economy. The people in this economy have 20 million in money, and they deposit all their money in Humongous Bank. Humongous Bank decides on a policy of holding 100 reserves. Draw a T-account for the bank. Humongous Bank is required to hold 5 of its existing 20 million as reserves, and to loan out the rest. Draw a T-account for the bank after it has made its first round of loans. Assume that Humongous bank is part of a multibank system. How much will money supply increase with that original 19 million loan?
BSW Bank currently has $150 million in transaction deposits on its balance sheet. The Federal Reserve has currently set the reserve requirement at 10 percent of transaction deposits. iIf the Federal Reserve decreases the reserve requirement to 6 percent, show the balance sheet of BSW and the Federal Reserve System just before and after the full effect of the reserve requirement change. Assume BSW withdraws all excess reserves and gives out loans and that borrowers eventually return all of these funds to BSW in the form of transaction deposits.
E4
Explain which interest rate sets the upper limit on the federal funds rate. The upper limit on the federal funds rate is the _______ because _______. A. discount rate; the discount rate must be 1 percent higher than the federal funds rate B. interest on reserves rate; a bank will borrow reserves only if the federal funds rate is less than the interest on reserves rate C. discount rate; a bank will borrow reserves only if the federal funds rate is less than the discount rate D. long-term real interest rate; the loanable funds market determines the federal funds rate range
How do banks create new deposits by making loans, and what factors limit the amount of deposits and loans they can create? When a bank makes a loan, The amount of loans and new deposits that a bank can create is limited by OA it creates a new deposit for the person who receives the loan; the banks' excess reserves, the desired reserve ratio, and the currency drain ratio O B. the Fed prints more dollar bills; the speed at which the Fed can increase the quantity of bills in circulation and the desired reserve ratio O C. the Fed creates a new deposit for the bank; the bank's total assets and total liabilities O D. the Fed creates a new deposit for the bank; the amount of excess reserves and the desired reserve ratio O E. it creates a new deposit for the person who receives the loan; the banks total assets and total liabilities
HOW THE FEDERAL RESERVE DECIDES HOW MUCH MONEY TO PUT INTO THE ECONOMY WASHINGTON, May 4 — Only one thing is entirely agreed, accepted and understood about the somewhat mysterious and often controversial subject of the Government's monetary policy, which is conducted by the semi-independent Federal Reserve Board. This is that the Fed, as it is commonly known, can create money out of thin air by writing a check on itself without any deposits to back that check. It can do so in unlimited amounts. And only it can do so—the Treasury cannot. Yesterday, Arthur F. Burns, chairman of the Federal Reserve Board, disclosed to Congress the Fed's intentions and targets for creation of money in the year ahead. But he gave his targets in the form of range, not a precise number, and he is the first to admit that he and his colleagues are not at all certain what exactly is the "right" amount of money to create for the good of the nation's economy. The…
Suppose you win on a scratch-off lottery ticket and you decide to put all of your $2,500 winnings in the bank. The reserve requirement is 10%. What is the maximum possible increase in the money supply as a result of your bank deposit? maximum increase: $ Which events could cause the increase in the money supply to be less than its potential? All money loaned out is deposited back into the banking system. Banks choose to loan out all excess reserves. SEL Some loan recipients choose to hold some cash instead of depositing all of it in banks. Banks decide to keep some excess reserves on hand. C Z MODE PAYLA I topm PEDRULESTAN SVETE D P Activate Windows Salto Settings to activate Windows
Page 4 5. Use the following T-account information and the fact that the required reserve ratio in this economy is 0.10 (i.c., 10 %) to answer the questions below (Show your work) Treasury dd T 20 Bonds 600 Bonds Loans to Fed 300 dd 190 B dd 100 T 20 Banks FRN 200 Public 1500 Loans from Banks 850 Banks Cash 60 dd p 1500 dd p P dd B 190 Other Cash 150 Loans to Deposits 100 Bonds 100 Public 850 Loans from Other Bonds 100 Fed 100 Deposits 100 a. What are the Bank Reserves? b. What are the Bank Required Reserves? c. What are the Bank Excess Reserves? d. What is the current Money Supply (MI)? e. If Banks maximized their Loans to the Public, using up all their excess reserves, what will be the new Money Supply? f. The Fed did not like the new Money Supply and sold 40 in Bonds to Banks. After the banks bought the bonds, they have to call in loans from the public. What will be the new Money Supply end up being after the banks made the required changes? g. If the Banks refused the buy the 40 in…
What effect would an increase in the discount rate have on the money supply? OIt would increase the money multiplier O It would cause the money supply to contract It would not affect the money supply It would cause the money supply to expand
Please give exact answer with explanation steps and take like
You take $100 you had kept under your mattressand deposit it in your bank account. If this $100stays in the banking system as reserves and if bankshold reserves equal to 10 percent of deposits, byhow much does the total amount of deposits in thebanking system increase? By how much does themoney supply increase?
Page 5 6. Use the following T-account information and the fact that the required reserve ratio in this economy is 0.10 (i.c., 10%) to answer the questions below (Show your work) Treasury dd T 30 Bonds 600 Bonds Fed 300 dd 270 B Loans to dd 30 Banks 200 T FRN 200 Public 1650 Loans from Banks 950 Banks Cash 30 dd p 1650 dd P dd 270 B Other Cash 100 Loans to Deposits 150 Bonds 100 Public 950 Loans from Other Bonds 100 Fed 200 Deposits 150 a. What are the Bank Reserves? b. What are the Bank Required Reserves? c. What are the Bank Excess Reserves? d. What is the current Money Supply (MI)? e. If Banks maximized their Loans to the Public, using up all their excess reserves, what will be the new Money Supply? f. The Fed did not like the new Money Supply and sold 50 in Bonds to Banks. After the banks bought the bonds, they have to call in loans from the public. What will be the new Money Supply end up being after the banks made the required changes? g. If the Banks refused the buy the 50 in…