The following graph shows a hypothetical demand function for federal funds. Currently, the total amount of reserves in the banking system is $50 billion, the discount rate is 3.5 percent, and interest on reserves equals IOR = 1 percent. If demand for federal funds increases by $40 billion, the equilibrium fed funds rate will equal: Federal Funds Rate (FFR) 5.50% 5.00% 4.50% 4.00% 3.50% 3.00% 2.50% 2.00% 1.50% 1.00% 0.50% 0.00% SO $10 $20 Oa. FFR 3.00% Ob. FFR = 3.50% O c. FFR = 4.00% d. FFR = 4.50% e. None of the above. $30 $40 $50 560 570 580 $90 $100 $110 $120 $130 $140 Bank Excess Reserves (SBillion)

The following graph shows a hypothetical demand function for federal funds. Currently, the total amount of reserves in the banking system is $50 billion, the discount rate is 3.5 percent, and interest on reserves equals IOR = 1 percent. If demand for federal funds increases by $40 billion, the equilibrium fed funds rate will equal: Federal Funds Rate (FFR) 5.50% 5.00% 4.50% 4.00% 3.50% 3.00% 2.50% 2.00% 1.50% 1.00% 0.50% 0.00% SO $10 $20 Oa. FFR 3.00% Ob. FFR = 3.50% O c. FFR = 4.00% d. FFR = 4.50% e. None of the above. $30 $40 $50 560 570 580 $90 $100 $110 $120 $130 $140 Bank Excess Reserves (SBillion)

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Suppose the Federal Reserve conducts an open market purchase from a bank for $300 million. Assuming the required reserve ratio is 10%, what would be the effect on the money supply in each of the following situations? If there are many banks, all of which make loans for the full amount of their excess reserves, the money supply will increase by $ million. (Enter your response as a whole number.)
Assume that banks hold no excess reserves and that all currency is deposited into the banking system. If the required 10.00 %, and the Federal Reserve wants to increase the money supply by $80.00 million, the Fed would need to make a purchase of $ million. (Insert your answer in millions, and round to two decimal places.)
Assume economic growth is weak, reserves are abundant, and the inflation rate has been below the Fed's price stability goal for a significant period of time. Which of the following would best describe an appropriate policy action? a. Lower the target range for the federal funds rate and use open market operations to increase the level of reserves in the banking system. b. Raise the target range for the federal funds rate while simultaneously decreasing the interest on reserve balances rate, overnight reverse repo rate, and discount rate. c. Lower the target range for the federal funds rate and simultaneously decrease the interest on reserve balances rate, overnight reverse repo rate, and discount rate. d. Raise the target range for the federal funds rate and simultaneously increase the interest on reserve balances rate, overnight reverse repo rate, and discount rate.
The following graph shows a hypothetical demand function for federal funds. Currently, the total amount of reserves in the banking system is $50 billion, the discount rate is 3.5 percent, and interest on reserves equals IOR = 1 percent. The Fed wants to reduce the equilibrium fed funds rate to 1.5% by reducing the discount rate. In that case, it has to stand ready to provide $X billion of discount loans to the commercial banks at the new discount rate. What is the value of X? Federal Funds Rate (FFR) 5.50% 5.00% 4.50% 4.00% 3.50% 3.00% 2.50% 2.00% 1.50% 1.00% 0.50% 0.00% SO $10 O a. X= $0 billion O b. X= $10 billion O c. X= $20 billion O d. X= $30 billion e. None of the above. $20 $30 $40 $50 $60 $70 $80 $90 $100 $110 $120 $130 $140 Bank Excess Reserves ($Billion)
The Bank of Key West is not going to have enough reserves at the end of the business day to meet its reserve requirement of 10%. It currently has two options to borrow money overnight in order to meet the requirement. First, it could borrow money from the Federal Reserve at a rate of 1.35%. Second, it could borrow money from other banks at a rate of 0.55%. What is the federal funds rate, and what is the discount rate? 1.35 federal funds rate: Incorrect I 1.55 discount rate: Incorrect What will happen to other short-term interest rates if the Fed increases its federal funds rate target? They will also increase. They will remain unchanged.. They will become irrelevant. They will decrease.
Using the supply and demand analysis of the market for reserves, indicate what happens to the federal funds rate, borrowed reserves, and nonborrowed reserves, holding everything else constant, under the following situations. Be sure to fully explain the shifts in reserve demand, reserve supply, and changes in the federal funds rate. Please include a picture of your graphs in the folder below.
8) If the reserve requirement on banks is 10 percent, then the money multiplier for the economy is: A) 15 B) 20 C) 1 D) 10 9) Assume that individuals hold no cash and banks hold no excess reserves. The Federal Reserve buys Treasury securities from a bank, and the reserve requirement on banks is 10 percent. As a result of the Federal Reserve's action, the money supply in the economy increases by $5,000. Therefore, the Federal Reserve must have bought _____ of securities from the bank. A) $1000 B) $10 C) $500 D) $100 10) Which of the following institutions insures the deposits in commercial banks, savings banks, and savings and loans institutions? A) National Credit Union Insurance Company B) Federal Reserve C) US Treasury D) Federal Deposit Insurance Corporation THANK YOU SO MUCH FOR HELPING ME!!!!!!
The following graph represents the money market for some hypothetical economy. This economy is similar to the United States in the sense that it has a central bank called the Fed, but a major difference is that this economy is closed (and therefore does not have any interaction with other world economies). The money market is currently in equilibrium at an interest rate of 5% and a quantity of money equal to $0.4 trillion, designated on the graph by the grey star symbol. INTEREST RATE (Percent) 7.0 6.5 6.0 5.5 PRICE LEVEL 4.5 4.0 3.5 3.0 0 Money Demand 0.1 Money Supply 0.3 0.4 0.5 0.6 MONEY (Trillions of dollars) 0.2 0.7 0.8 New MS Curve Suppose the Fed announces that it is lowering its target interest rate by 25 basis points, or 0.25 percentage points. To do this, the Fed will use open- market operations to the money by the public. OUTPUT New Equilibrium Use the green line (triangle symbol) on the previous graph to illustrate the effects of this policy by placing the new money supply…
Suppose that the next FOMC meeting is coming up in a few days and the official inflation and output gap numbers have just been released. The current federal funds rate is 1.25%, the long-term fed funds rate target is 3.25%, and the inflation rate target is 2%. According to the release, inflation is currently at 1.25 percent and the output gap is -0.5 percentage points. Given the information above, the expected federal funds rate is _____ percent.
Suppose that a bank does the following: a. Sets a loan rate on a prospective loan with BR = 8.04% and ϕ = 4.15%. b. Charges a 0.26 percent loan origination fee to the borrower. c. Imposes a 14 percent compensating balance requirement to be held as noninterest-bearing demand deposits. d. Holds reserve requirements of 9 percent imposed by the Federal Reserve on the bank’s demand deposits. Calculate the bank’s ROA on this loan. Note: Convert your answer to percentage format. Enter your answer rounded to 2 decimals, and without any units. So, for example, if your answer is 3.4568%, then just enter 3.46.
Assuming all else equal, the demand curve for reserves in an economy shifts to the left. Which of the following could explain this shift? Rapid expansion of the economy A decrease in the federal funds rate An increase in the federal funds rate Rapid contraction of the economy.
Assume that banks are able to lend out 85 cents on every dollar deposited, and a bank receives $9,000 in deposits. If the reserve requirement is altered to 10%, what will this do to the money supply? What does this do to equilibrium interest rate in the market for loanable funds? (Show on a graph.) What is another way the Federal Reserve will achieve the same outcome in Part 1?