Suppose the Federal Reserve decided to sell $25 billion worth of government securities in the open market. Instructions: Enter your responses as a whole number. a. By how much will M1 change initially if the entire $25 billion is withdrawn from transactions accounts? M1 will initially decrease by $ 25 billion. b. How will the lending capacity of the banking system be affected if the reserve requirement is 10 percent? Total lending capacity will decrease ☑ by $ billion. c. How will banks induce investors to respond to this change in lending capacity? If the money supply increases, interest rates will decrease If the money supply decreases, interest rates will increase and investors will want to borrow more and investors will want to borrow fewer funds. ✓ funds.

Suppose the Federal Reserve decided to sell $25 billion worth of government securities in the open market. Instructions: Enter your responses as a whole number. a. By how much will M1 change initially if the entire $25 billion is withdrawn from transactions accounts? M1 will initially decrease by $ 25 billion. b. How will the lending capacity of the banking system be affected if the reserve requirement is 10 percent? Total lending capacity will decrease ☑ by $ billion. c. How will banks induce investors to respond to this change in lending capacity? If the money supply increases, interest rates will decrease If the money supply decreases, interest rates will increase and investors will want to borrow more and investors will want to borrow fewer funds. ✓ funds.

Macroeconomics: Private and Public Choice (MindTap Course List)

16th Edition

ISBN:9781305506756

Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

Publisher:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

Chapter13: Money And The Banking System

Section: Chapter Questions

Problem 17CQ

See similar textbooks

Similar questions

2. Suppose your bank lowers its minimum balance requirement by $500. So you take $500 out of your checking account and invest in Money Market Mutual Funds. What is the overall effect on M1 and M2? a. M1 falls by $500, M2 rises by $500. b. M1 is unchanged, M2 is unchanged. c. M1 falls by $500, M2 is unchanged. d. M1 is unchanged, M2 rises by $500.
Suppose the Fed decided to purchase $100 billion worth of government securities in the open market. Assume all payments are directly deposited into or withdrawn from the banking system. What impact would this action have on the economy? Specifically, answer the following questions. Instructions: Enter your responses as a whole number. a. How will M1 be affected initially? O Decrease by $100 billion O Increase by $100 billion O Not enough information to answer O No initial change to M1 b. By how much will the banking system's lending capacity increase if the reserve requirement is 20 percent? $ billion c. Must interest rates rise or fall to induce investors to utilize this expanded lending capacity? O Rise O Fall d. By how much will aggregate demand initially increase if investors borrow and spend all the newly available credit? $ billion e. Under what circumstances would the Fed be pursuing such an open market policy? O Inflation O Recession f. To attain those same objectives, what…
ou just deposited $4,000 in cash into a checking account at the local bank. Assume that banks lend out all excess reserves and there are no leaks in the banking system. That is, all money lent by banks gets deposited in the banking system. Round your answers to the nearest dollar. If the reserve requirement is 1212%, how much will your deposit increase the total value of checkable bank deposits? $ If the reserve requirement is 44%, how much will your deposit increase the total value of checkable deposits? $ Increasing the reserve requirement the money supply.
Table 1 shows the financial position of Bank Uno once $2665.00 has been deposited. Assume that the required reserve ratio is 6.00%, that banks do not keep excess reserves, and that all the money loaned out from Bank Uno is deposited into Bank Duo (whose loans go to other banks not shown here). Once the lending and depositing process is complete, what will the accounts look like in Tables 2 and 3? Specify all answers to two decimal places. Table 1. Bank Uno's Initial T-Account Assets Liabilities Reserves: $2665.00 Deposits: $2665.00 Table 2. Bank Uno's T-Account After Loans Assets Liabilities Reserves: ? Deposits: ? Loans: ? Table 3. Bank Duo's T-Account After Deposits and Loans Assets Liabilities Reserves: ? Deposits: ? Loans: ?
Suppose the banking system has a vault cash of GHc1,000 deposit at the central bank of GHc2,000 and demand deposits of Ghc10,000. a. if the reserve requirement is 20 percent, what is the maximum potential increase in the money supply given the banks reserve position? b. If the central bank now purchases GHc500 worth of government bonds from private bond dealers, what are excess reserves of the banking system? ( Assume that the bond dealers deposit the Ghc500 in demand deposit). How much can the banking system increase the money supply given the new reserve position?
: What is money multiplier? How is it related to the reserve ratio? Calculate the total maximum and total minimum possible money supply due to the deposit of 200 SAR in a bank. The country follows a fractional reserve banking system, and the Reserve ratio is 20%.
Use Table 1 to answer questions 1 and 2. Assume that the Federal Reserve prints $149.00 in currency and uses the $149.00 in currency to buy Treasury securities from the government. The government spends the $149.00, somebody earns it and they deposit into Bank A. The required reserve ratio is 7.00%. Bank A B- C D E O $9.02 Total What are the Reserves in Bank E? O$8.39 O $7.80 Table 1 O$9.50 Deposits Loans Reserves
Suppose that banks hold $20 billion in total reserves and the public holds $5 billion A. Calculate the maximum amount that the bank can lend. B. Calculate the money supply M2. C. As Eid approaches, customers witharaw $1 billion from their bank accounts. Calculate the money supply M2 after the withdrawals D. From your results in C, what can you conclude about the impact of bank withdrawals on money supply. cash. Required reserves ratio R = 25% For the toolbar, press ALT+F10 (PC) or ALT+FN+F10 (Mac). BIUS A 2 エ%G Q Paragraph Arial 10pt
Banks in New Transylvania have a desired reserve ratio of 10 percent of deposits and noexcess reserves. The currency drain ratio is 50 percent of deposits. Now suppose that thecentral bank increases the monetary base by $900 billion.i. How much do the banks lend in the first round of the money creation process?ii. How much of the initial amount loaned flows back to the banking system as newdeposits?iii. How much of the initial amount loaned does not return to the banks but is heldas currency?iv. Why does a second round of lending occur?
Banks in New Transylvania have a desired reserve ratio of 10 percent of deposits and noexcess reserves. The currency drain ratio is 50 percent of deposits. Now suppose that thecentral bank increases the monetary base by $900 billion.i. How much do the banks lend in the first round of the money creation process?ii. How much of the initial amount loaned flows back to the banking system as newdeposits?iii. How much of the initial amount loaned does not return to the banks but is heldas currency?iv. Why does a second round of lending occur?v. Calculate money multiplier in this example?vi. What is the final increase in the quantity of money?
Assume that the balance sheet of a bank in your assigned country as below:Assets LiabilitiesReserves $5,000 Deposits $40,000Loans $45,000 Capital $10,000a. If the required reserve ratio is 3 percent, then how much does this bank has excessreserves?b. Suppose a bank purchases $1,500 of government securities using funds from reserves.How much do bank assets change as a result of this transaction? Show the change inthe balance sheet above. How much does Money Supply change due to this transaction?c. Calculate the bank’s leverage ratio. What is the maximum decrease (in %) in the marketvalue of assets before the bank becomes insolvent?
You take Rs. 400 you had kept under your mattress and deposit it in your bank account. If this Rs. 400 stays in the banking system as reserves and if banks hold reserves equal to 10 percent of deposits, ( A ) y how much does the total amount of deposits in the banking system increase? (B ) By how much does the money supply increase?