The following information pertains to the Bank of the Kawarthas.Bank of theKawarthasAssets:ReservesLoans$3,500S66,500Liabilities:Deposits $70,000Refer to Table 10-4, If all banks hold only the required 4 percent of deposits as reserves, then what is the money multiplier?a. 5Б. 10c. 15d. 25

Money supply refers to the amount of money available in an economy at a specific time. The basic…

The following information pertains to the Bank of the Kawarthas. Bank of the Kawarthas Assets: Reserves Loans Liabilities: |Deposits $70,000 $3,500 S66,500 Refer to Table 10-4. If all banks hold only the required 4 percent of deposits as reserves, then what is the money multiplier? Oa.5 Ob. 10 Oc 15 Od.25

The following information pertains to the Bank of the Kawarthas. Bank of the Kawarthas Assets: Reserves Loans Liabilities: |Deposits $70,000 $3,500 S66,500 Refer to Table 10-4. If all banks hold only the required 4 percent of deposits as reserves, then what is the money multiplier? Oa.5 Ob. 10 Oc 15 Od.25

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 that a bank holds $15m in treasury bonds $10m in reserves $30m of checkable deposits $20m of time deposits $6m of capital How much loan does the bank have if we know it doesn't have any other assets or liabilities Suppose that checkable deposits and reserves pay 0 interest The interest rate on treasuries is 3% The loan pays 7% Time deposits pay 5% How much profit does the bank make? What is the bank's return on assets? 3.2% 2.9% 3.7% 2.6%
8. The reserve requirement, open market operations, and the money supply Consider a system of banking in which the Federal Reserve uses required reserves to control the money supply (as was the case in the United States before 2008). Assume that banks do not hold excess reserves and that households do not hold currency, so the only money exists in the form of demand deposits. To further simplify, assume the banking system has total reserves of $400. Determine the money multiplier as well as the money supply for each reserve requirement listed in the following table. Reserve Requirement Simple Money Multiplier Money Supply (Percent) (Dollars) 20 10 A higher reserve requirement is associated with a money supply. Suppose the Federal Reserve wants to increase the money supply by $200. Maintain the assumption that banks do not hold excess reserves and that households do not hold currency. If the reserve requirement is 10%,…
4. Working through an open-market operation Assume that the following balance sheet portrays the state of the banking system. The banks currently have no excess reserves. Assets Liabilities and Net Worth (Billions of Dollars) Total reserves 5 Checkable deposits 50 Loans 25 Securities 20 Total 50 Total 50 What is the required reserve ratio? 10% O 40% O 5% 25%
7. The money creation process Suppose First Main Street Bank, Second Republic Bank, and Third Fidelity Bank all have zero excess reserves. The required reserve ratio is 10%. Hubert, a client of First Main Street Bank, deposits $500,000 into his checking account at First Main Street Bank. Complete the following table to reflect any changes in First Main Street Bank's T-account (before the bank makes any new loans). Assets Liabilities Complete the following table to show the effect of a new deposit on excess and required reserves when the required reserve ratio is 10%. Hint: If the change is negative, be sure to enter the value as negative number. Amount Deposited Change in Excess Reserves Change in Required Reserves (Dollars) (Dollars) (Dollars) 500,000 Now, suppose First Main Street Bank loans out all of its new excess reserves to Eileen, who immediately uses the funds to write a check to Clancy. Clancy…
Total reserves $55 billion Transactions deposits: $600 billion Cash held by public: $400 billion Bonds held by public: $400 billion Stocks held by public: $140 billion Gross domestic product: $8 trillion Interest rate: 6 percent Required reserve ratio: 0.10 How large is the money supply (M1)? How much excess reserves are there? What is the money multiplier? What is the available lending capacity?
5. Consider the T-table of the Bank of Boston. Suppose the Federal Reserve Bank buys an additional $2 million in government bonds from the Bank of Boston. Assume (1) the required reserve ratio is 10 percent, and (2) the Bank of Boston issues all excess reserves in loans (I.e., there are no excess reserves). The new money supply equals $ million. Submit Balance sheet of the Bank of Boston Liabilities -55,000,000 Checkable deposits +$5,000,000 Assets Government bonds Currency (= bank reserves) +$5,000,000 Loans $0
7. For each of the following statements, indicate whether it is correct by checking the appropriate box:a) A decrease in the legal cash flow coefficient (θ) allows commercial banks to grant more loans on the basis of the same amount of deposits, leading to an increase in the value of the money multiplier and therefore in the money supply in circulation in the economy;b) When the Central Bank conducts an open market operation, consisting of the purchase of Treasury bills, the money supply in circulation in the economy increases, all other things being equal;c) If the fraction of the money supply held in the form of fiat money is 25%, and if the legal tender coefficient (θ) is 20%, then the money multiplier is 2.5;(d) If the fraction of the money supply held in the form of currency is 20% and the legal cash flow coefficient is 25%, then the money multiplier is 2.5 ;e) None of the above statements is correct.
6. Required and excess reserves Suppose that Second Republic Bank currently has $200,000 in demand deposits and $130,000 in outstanding loans. The Federal Reserve has set the reserve requirement at 10%. Second Republic Reserves Required Reserves Excess Reserves (Dollars) (Dollars) (Dollars)
39. Which of the following are ways in which banks can help businesses in the United States? Choose all that apply. Banks can reduce the money supply through the use of the money multiplier. Banks can serve as a stopgap to save struggling businesses from bankruptcy with small loans. Bank loans remove personal liability from company owners. O Bank loans are tax-deductible for businesses.
14. With reference to the Federal Reserve's M1 and M2 measures of the money supply, please indicate whether funds held in each of the forms listed below are included only in M1, only in M2, in both M1 and M2, or in neither M1 nor M2. (a) Money market mutual fund shares. (b) Bank reserves. ге (c) Demand deposits. (d) Small (under $100,000) certificates of deposit. (e) Currency in circulation.
1. Suppose that a bank’s customer deposits $20,000 in her checking account. The required reserve ratio is 0.125. What are the required reserves on the new deposit? What is the largest loan that the bank can make on the basis of the new deposit? What is the maximum the banking system can increase demand deposits as a result of this deposit? -------------
1. Which of the following would effectively increase the money multiplier? An increase in cash drain to the publicA decrease in the required reserve ratioAn increase in the excess reserves held by commercial banksAn increase in interest rates in the economyA decrease in the marginal propensity to consume with explanation please