Economics: Private and Public Choice (MindTap Course List)
16th Edition
ISBN: 9781305506725
Author: James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher: Cengage Learning
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Question
Chapter 13, Problem 17CQ
(a)
To determine
Identify the
(b)
To determine
Identify the maximum loan that the bank will extend.
(c)
To determine
Identify the changes in the bank balance sheet.
(d)
To determine
Describe whether the bank would extend an additional loan or not.
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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.
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What would be the immediate effect if the central bank increases the cash reserve ratio?
a.
It reduces the cash reserve with the commercial banks.
b.
It increases the cash reserves with the commercial banks.
c.
There is no change in the amount of cash reserve at the commercial banks.
d.
It increases the borrowings of commercial banks.
You take $300 you had kept under your mattress
and deposit it in your bank account. Suppose this
$300 stays in the banking system as reserves and
banks hold reserves equal to 15 percent of
deposits.
The total amount of deposits in the banking
system increases by $
supply increases by $.
and the money
Chapter 13 Solutions
Economics: Private and Public Choice (MindTap Course List)
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Similar questions
- Fill in the blanks to make the following statements correct. a. Suppose the Bank of Canada purchases a $10,000 bond from Bob's Financial Firm, and Bob's deposits its cheque at the CIBC. This is a new deposit to the banking system and will allow the commercial banks to lend more b. If the CIBC has a target reserve ratio of 20 percent, it will keep $ 2000 as reserves and will lend $ 8000. c. Assuming there is no cash drain from the banking system, the ultimate effect is x$10,000 = $ in deposits in the banking system of a decrease an increasearrow_forwardAt one time, the country of Sylvania had no banks, but had currency of $35 million. Then a banking system was established with a reserve requirement of 20 percent. The people of Sylvania now keep one third of their money in the form of currency and two thirds in the form of bank deposits. If banks do not hold excess reserves, how much currency do the people of Sylvania now hold? a. $11.67 million b. $13.13 million С. $21.9 million d. $25 million Do not use Excel, use the shortest possible way to solve this question.arrow_forwardSuppose that Karen deposits $500 into her checking account at the bank. The reserve requirement for Karen's bank is 15%. Assume the bank does not want to hold any excess reserves of new deposits. a. Use this information to complete the balance sheet below to show how the bank's assets and liabilities change when Karen deposits the $500. Instructions: Enter your answers as a whole number. A Simple Bank Balance Sheet Assets Change in Reserves: $ Change in Loans: $ Liabilities Change in Deposits: $ b. Why are deposits considered liabilities for a bank? O Deposits can be loaned out by the bank. O Deposits can be withdrawn at any time O The bank must pay Interest on deposits. O The bank must hold deposits as reserves at the Federal Reserve.arrow_forward
- What is the role of banks as financial intermediaries? a) Savers go directly to the banks for funds. b) Banks issue bonds to finance their daily operations. c) Borrowers go directly to savers for funds. d) Savers deposit their funds into banks; banks extend loans to borrowers. e) Borrowers deposit their funds into banks; banks extend loans to savers. What is the role of banks as financial intermediaries? a) Savers go directly to the banks for funds. b) Banks issue bonds to finance their daily operations. c) Borrowers go directly to savers for funds. d) Savers deposit their funds into banks; banks extend loans to borrowers. e) Borrowers deposit their funds into banks; banks extend loans to savers..arrow_forwardXYZ bank has $500 of reserves, $500 of loans and $1000 of deposits. Let's suppose that the required reserve ratio is 10%. How much could the bank make in additional loans right now? How much will be the excess reserves? How much could the bank make in additional loans right now? How much will the money supply increase after the money creation process is finished?arrow_forwardSuppose that your bank's reserve ratio is 0.2 and you deposit $50,000 into the bank. Assume that the bank loans out the maximum amount it can, and people deposit all their money. What is the deposit multiplier? What is the total increase in deposits in the banking system? What is the change in the money supply?arrow_forward
- The economy of Elmendyn contains 900 $1 bills. If people hold all money as currency, the quantity of money is . If people hold all money as demand deposits and banks maintain 100 percent reserves, the quantity of money is . If people hold equal amounts of currency and demand deposits and banks maintain 100 percent reserves, the quantity of money is . If people hold all money as demand deposits and banks maintain a reserve ratio of 12.5 percent, the quantity of money is . If people hold equal amounts of currency and demand deposits and banks maintain a reserve ratio of 12.5 percent, the quantity of money is .arrow_forwardsuppose the required reserve ratio is 11%. How much additional money can BBB lend out at a maximum? suppose the required reserve ratio is lowered to 8%. What is the Maximum amount of additional money that BBB can lend out? Is this different than the maximum amount of new money BBB can create by itself? 3. suppose the required reserve ratio is raised to 15%. What is the maximum amount of additional money BBB can lend out?arrow_forwardAssuming that banks lend all of their access reserves and people deposit all of their money, what will the Fed have to do in order to increase the supply of money by $120 billion if the Required Reserves Ratio is .20? Select one: a. It needs to buy $20 billion dollar worth of bonds from banks b. It needs to buy $24 billion dollar worth of bonds from banks c. It needs to sell $20 billion dollar worth of bonds from banks d. It needs to sell $24 billion dollar worth of bonds from banks e. It needs to sell $40 billion dollar worth of bonds from banksarrow_forward
- 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 (show all work and calculations). Humongous Bank is required to hold 5% of its existing $20 million as reserves, and to loan out the rest. What the amount of the required reserves? Assume no loans have been made, how many loans can be made now? What is the money multiplier? Assume that Humongous bank is part of a multibank system. If all money is loaned out, how much can the money supply increase?arrow_forwardSuppose you win on a scratch-off lottery ticket and you decide to put all of your $3,500 winnings in the bank. The reserve requirement is 5%. How much maximum of new money will be created (maximum amount of new checking deposits created by the banking system) as a result of your bank deposit? Hint: do not count your initial deposit as part of increase. Number $70000 ☐ ☐ Incorrect. The bank can only loan out excess reserves. Calculate the excess reserves after the lottery winnings were deposited, than multiple that number by the money multiplier. Which events could cause the increase in the money supply to be less than its potential? Check all that apply. Some loan recipients choose to hold some cash instead of depositing all of it in banks. All money loaned out is deposited back into the banking system. Banks decide to keep some excess reserves on hand. Banks choose to loan out all excess reserves.arrow_forwardAssume that the bank makes these loans. What will the new balance sheet look like? By how much has the money supply increased or decreased? If the money multiplier is 5, how much money will ultimately be created by this event?arrow_forward
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