Answered: Using the supply and demand analysis of…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

Using the supply and demand analysis of the market
for reserves, indicate how the following situations
would affect central bank interest rates and economies
in general.
a. The central bank eliminates interest paid on excess
reserve.
b. The central bank introduces special interest rates
(lower than usual) for commercial banks and sets
special auction.
c. The central bank conducts an open market sale of
certain securities.
d. The central bank sets negative interest rates on bank
deposits.
e. The central bank increases reserve requirements.

Definition Definition Capital reserves held by banks or financial institutions over and above the reserves that are required to be maintained by the regulator toward its liabilities and for internal controls. For commercial banks, excess reserve is the amount over the standard reserve as decided by the central bank. These excess reserve funds are available in the form of cash and cash equivalents.

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