(a)
To compute:
The
Answer to Problem 13P
The
10 percent | $10,000 |
20 percent | $20,000 |
25 percent | $25,000 |
50 percent | $50,000 |
Explanation of Solution
The required reserve created by $100,000 if the bank faces the requirement of reserve ratio of 10%:
Required Reserve=Reserve ratio×Deposits=0.1×100,000=$10,000
The required reserve created by$100,000if the bank faces the requirement of reserve ratio of 20%:
Required Reserve=Reserve ratio×Deposits=0.2×$100,000=$20,000
The required reserve created by$100,000 if the bank faces the requirement of reserve ratio of 25%:
Required Reserve=Reserve ratio×Deposits=0.25×$100,000=$25,000
The required reserve created by$100,000 if the bank faces the requirement of reserve ratio of 50%:
Required Reserve=Reserve ratio×Deposits=0.5×$100,000=$50,000
Required reserve:
It refers to a certain amount of cash from the deposits that banks need to keep according to the guidelines of central bank.
Required reserve is calculated by,
RR= r× D
Here, RR is required reserve, r is percentage of required reserve and D is the total amount in
deposits.
Excess reserve:
The holding of reserves in excess by the banks or financial institutions than what is required by the regulators, creditors or internal controls is termed as excess reserve or capital reserve.
ER=Cash Reserve−Required Reserve
Money multiplier:
It calculates the potential amount of money a bank generates with each dollar of reserves.
Money multiplier=1R
Where, R is required reserve.
(b)
To compute:
The additional dollar that can be lent out as a result of $100,000 deposit for the given reserve requirements.
Answer to Problem 13P
The additional dollar that can be lent out as a result of $100,000 deposit if the bank faces the given reserve requirements is as shown below:
10 percent | $90,000 |
20 percent | $80,000 |
25 percent | $75,000 |
50 percent | $50,000 |
Explanation of Solution
If the initial deposit is $100,000 with required reserve as $10,000.
Calculation for excess reserve:
ER=Cash Reserve−Required Reserve= $100,000−$10,000=$90,000
If the initial deposit is $100,000 with required reserve as $20,000.
Calculation for excess reserve:
ER=Cash Reserve−Required Reserve=$100,000−$20,000=$80,000
If the initial deposit is $100,000 with required reserve as $25,000
Calculation for excess reserve:
ER=Cash Reserve−Required Reserve=$100,000−$25,000=$75,000
If the initial deposit is $100,000 with required reserve as $50,000
Calculation for excess reserve:
ER=Cash Reserve−Required Reserve=$100,000−$50,000=$50,000
Working note:
The required reserve created by $100,000 if the bank faces the reserve ratio is 10% :
Required Reserve=Reserve ratio×Deposits=0.1×$100,000=$10,000
The required reserve created by $100,000 if the bank faces the reserve ratio is 20% :
Required Reserve=Reserve ratio×Deposits=0.2×$100,000=$20,000
The required reserve created by $100,000 if the bank faces the reserve ratio is 25% :
Required Reserve=Reserve ratio×Deposits=0.25×$100,000=$25,000
The required reserve created by $100,000 if the bank faces the reserve ratio is 50% :
Required Reserve=Reserve ratio×Deposits=0.5×$100,000=$50,000
Required reserve:
It refers to a certain amount of cash from the deposits that banks need to keep according to the guidelines of central bank.
Required reserve is calculated by,
RR= r× D
Here, RR is required reserve, r is percentage of required reserve and D is the total amount in
deposits.
Excess reserve:
The holding of reserves in excess by the banks or financial institutions than what is required by the regulators, creditors or internal controls is termed as excess reserve or capital reserve.
ER=Cash Reserve−Required Reserve
Money multiplier:
It calculates the potential amount of money a bank generates with each dollar of reserves.
Money multiplier=1R
Where, R is required reserve.
(c)
To compute:
The additional dollar that can be created by bank in response of a $100,000 deposit for the given reserve requirements.
Answer to Problem 13P
The additional dollar that can be created as a result of $100,000 deposit if the bank faces the given reserve requirementsis as shown below:
10 percent | $ 1,000,000 |
20 percent | $ 500,000 |
25 percent | $ 400,000 |
50 percent | $ 200,000 |
Explanation of Solution
Potential money can be calculated for reserve ratio of 10%.
Potential Money=Initial Deposit×Money Multiplier=$100,000×10=$1,000,000
Potential money can be calculated for reserve ratio of 20%.
Potential Money=Initial Deposit× Money Multiplier=$100,000×5=$500,000
Potential money can be calculated for reserve ratio of 25%.
Potential Money=Initial Deposit×Money Multiplier=$100,000×4=$400,000
Potential money can be calculated for reserve ratio of 50%.
Potential Money=Initial Deposit×Money Multiplier=$100,000×2=$200,000
Working note:
Calculation of money multiplier for reserve ratio of 10%:
Money multiplier=1R=10.1=10
Calculation of money multiplier for reserve ratio of 20%:
Money multiplier=1R=10.2=5
Calculation of money multiplier for reserve ratio of 25%:
Money multiplier=1R=10.25=4
Calculation of money multiplier for reserve ratio of 50%:
Money multiplier=1R=10.5=2
Required reserve:
It refers to a certain amount of cash from the deposits that banks need to keep according to the guidelines of central bank.
Required reserve is calculated by,
RR= r× D
Here, RR is required reserve, r is percentage of required reserve and D is the total amount in
deposits.
Excess reserve:
The holding of reserves in excess by the banks or financial institutions than what is required by the regulators, creditors or internal controls is termed as excess reserve or capital reserve.
ER=Cash Reserve−Required Reserve
Money multiplier:
It calculates the potential amount of money a bank generates with each dollar of reserves.
Money multiplier=1R
Where, R is required reserve.
Want to see more full solutions like this?
- Section 1 Answer all questions. Show all your workings. (a) Suppose there are two firms 1 and 2, whose abatement costs are given by c₁(e₁) and c₂ (e₂), where e denotes emissions and subscripts denote the firm. We assume that c{(e;) 0 for i = 1,2 and for any level of emission e we have c₁'(e) # c₂'(e). Furthermore, assume the two firms make different contributions towards pollution concentration in a nearby river captured by the transfer coefficients ε₁ and 2 such that for any level of emission e we have 2(e) +2 The regulator does not know the resulting C₁'(e) Τι environmental damages. Using an analytical approach explain carefully how the regulator may limit the concentration of pollution using (i) a Pigouvian tax scheme and (ii) uniform emissions standards. Discuss the cost-effectiveness of both approaches to control pollution. [200 marks] (b) "Whether the regulator sells or gives away tradeable emission permits free of charge, the quantities of emissions produced by firms are the…arrow_forwardExotic Coffee for the Poor? What a Genius Idea! you are a business consultant at a coffee shop. Your team leader came to you one morning with excitement on her face and told you, "Guess what? I have an idea for a great location for our next coffee shop. Think about it, Riceville is a city that has 150,000 people. Most of them are above the age of 16, which means they are potential coffee drinkers. Well, even though the majority of people in that city are making minimum wage and are considered poor, but the good news is that there are no coffee shops in Riceville and the only places you could get coffee there either restaurants or gas stations. What do you think?" Knowing that your company’s average drink price is $5.50, and the stores have nice sit-down areas and offer free WIFI and study spaces: What type of information about consumers in that area do you need to gather and understand to determine if people there will actually consume your coffee? How do the concepts of “budget and…arrow_forward(c) Assume an infinite horizon, continuous time and certainty. Furthermore, assume an additively separable utility function in consumption C and pollution stock S so that, U(C,S) = u(C) + v(S), where uc > 0; Ucc 0. Note that the first derivative, and the second subscript denotes the second derivative. The evolution of the pollution stock S over time is a function of consumption, decay rate of the stock of pollution & and abatement through the function, g(S) with gs > 0 and 9ss < 0. Time subscripts are ignored for ease of notation. Show that in the case of a stock pollutant, the marginal utility of consumption should equal the present value of disutility associated with the pollution stock. Interpret the condition.arrow_forward
- Q3/for a closed loop system whose block diagram is shown in the figure determine the values of K and t such that the maximum overshoot to the unit step input is 25% and time to peak is 2 sec K 1+TS $2arrow_forward2. Question The 'Democratic Family' consists of three members {mother m, father f, daughter d}, that have different preferences with respect to how much money X € [0,8] they think should be invested in the new family car. These preferences can be represented by the following utility functions: - Mother m: um(X) = 2X - X² Father f: uf(X) = 10X - X² - Daughter d: ud(X) = 4X - X² Calculate for each family member (f, m, d) the preferred amount of money to invest in the new car denoted by X; for i = {m, f,d}. Assume that (Xf, Xm, Xd) are the three alternatives on which the family must decide. Show that each family member has rational preferences over this domain. Preferences on the family level are determined by pairwise majority voting (all family members vote on two alternatives). Derive the family preference and check whether it is rational. Assume that the final family decision is made by conducting sequential pair- wise majority voting, where the loosing alternative is eliminated. Does…arrow_forward3. Question You invented a new lateral-flow test for asymptomatic Covid-19 detection, where saliva is entered into a test-tube and then the result is shown directly on the device. However, to save on costly chemicals you designed the tests such that it always reports a negative test result. Assume that the incidence rate is 5 per 1000 and that your test is used for detection of asymptomatic cases (without symptoms). (a) Calculate the probability that 100 randomly determined volunteers receive a correct test result by using the AND-rule and the OR-rule. Can your test be qualified as a diagnostic test? (b) The health authorities are investigating the performance of your test. Government guidelines require a specificity (conditional probability to re- ceive a negative test result given that the test-taker is not infected with COVID19) of at least 97% and a sensitivity (conditional probability to receive a positive test result given that the test-taker is infected with COVID-19) of at…arrow_forward
- 3. Question You invented a new lateral-flow test for asymptomatic Covid-19 detection, where saliva is entered into a test-tube and then the result is shown directly on the device. However, to save on costly chemicals you designed the tests such that it always reports a negative test result. Assume that the incidence rate is 5 per 1000 and that your test is used for detection of asymptomatic cases (without symptoms). (a) Calculate the probability that 100 randomly determined volunteers receive a correct test result by using the AND-rule and the OR-rule. Can your test be qualified as a diagnostic test? (b) The health authorities are investigating the performance of your test. Government guidelines require a specificity (conditional probability to re- ceive a negative test result given that the test-taker is not infected with COVID19) of at least 97% and a sensitivity (conditional probability to receive a positive test result given that the test-taker is infected with COVID-19) of at…arrow_forwardI need expert handwritten solutionsarrow_forwardmachine A operated manually cost 2000naira has a life of 2 years, while an automatic machine B cost 5000naira but has a life of 4 years,operating cost for machine A is 4000naira per year while of machine B is 3000naira only, which should be purchased?consider 10% interest I need expert handwritten solutionsarrow_forward
- Exploring EconomicsEconomicsISBN:9781544336329Author:Robert L. SextonPublisher:SAGE Publications, IncPrinciples of Economics 2eEconomicsISBN:9781947172364Author:Steven A. Greenlaw; David ShapiroPublisher:OpenStax
- Essentials of Economics (MindTap Course List)EconomicsISBN:9781337091992Author:N. Gregory MankiwPublisher:Cengage LearningBrief Principles of Macroeconomics (MindTap Cours...EconomicsISBN:9781337091985Author:N. Gregory MankiwPublisher:Cengage Learning