4. The money supply contraction process
Suppose First Main Street Bank, Second Republic Bank, and Third Fidelity Bank all have zero excess reserves. The required reserve ratio is 20%. Sam, a client of First Main Street Bank, purchases $1,500,000 of Treasury bills in an open market sale undertaken by the Fed. Upon receipt of Sam's check, the Fed subtracts $1,500,000 from First Main Street Bank’s Federal Reserve account, thereby extinguishing the money.
Complete the following table to reflect any changes in First Main Street Bank's balance sheet (before the bank makes any new loans).
First Main Street Bank's Balance Sheet | |||
Assets | Liabilities | ||
Reserves | $1,500,000 | Checkable Deposits | $1,500,000 |
Because the required reserve ratio is 20%, the $1,500,000 withdrawal First Main Street Bank's required reserves by . In order to maintain the required reserve ratio, First Main Street Bank now must its reserves by . One possible way to do this is to its outstanding loans.
Now suppose Neha repays her loan of $1,200,000 to First Main Street Bank by writing a check issued by Second Republic Bank. First Main Street Bank uses funds from a loan repayment to increase its reserves instead of making new loans. Second Republic Bank then replenishes its reserves by using the funds from loan repayments by Lorenzo, who writes a check issued by Third Fidelity Bank. Third Fidelity Bank then uses a loan repayment from Teresa to replenish its reserves instead of making new loans.
Fill in the following table to show the effect of this ongoing chain of events at each of the banks, including the initial withdrawal at the beginning of the question. Enter each answer to the nearest dollar.
Bank |
Decrease in Checkable Deposits |
Decrease in Required Reserves |
Decrease in Loans |
---|---|---|---|
(Dollars) |
(Dollars) |
(Dollars) |
|
First Main Street Bank | |||
Second Republic Bank | |||
Third Fidelity Bank |
Assume this process continues, with each successive loan being repaid using a checking account and banks using repayments to replenish their reserves without issuing any new loans. Under these assumptions, the initial destruction of $1,500,000 by the Fed results in an overall decrease of what in checkable deposits.
4. The money supply contraction process Suppose First Main Street Bank, Second Republic Bank, and Third...
5. The money supply contraction process Dismiss All Please Wait . . . Please Wait... Suppose First Main Street Bank, Second Republic Bank, and Third Fidelity Bank all have zero excess reserves. The required reserve ratio is 5%. Clancy, a client of First Main Street Bank, purchases $200,000 of Treasury bills in an open market sale undertaken by the Fed. Upon receipt of Clancy's check, the Fed subtracts $200,000 from First Main Street Bank’s Federal Reserve account, thereby extinguishing the...
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%. The Federal Reserve buys a government bond worth $250,000 from Alex, a client of First Main Street Bank. He deposits the money 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)....
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 5%. Gilberto, a client of First Main Street Bank, deposits $200,000 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 Labilities Complete the following table to show the effect of a...
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%. The Federal Reserve buys a government bond worth $500,000 from Brian, a client of First Main Street Bank. He deposits the money 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). Complete the foilowing...
3. The money supply expansion process Dismiss All Please Wait . . . Please Wait... Suppose First Main Street Bank, Second Republic Bank, and Third Fidelity Bank all have zero excess reserves. The required reserve ratio is 20%. The Federal Reserve buys a government bond worth $750,000 from Clancy, a client of First Main Street Bank. He deposits the money into his checking account at First Main Street Bank. Complete the following table to reflect any changes in First Main...
Unit 5 Assignment Back to Attempts: Keep the Highest: 14 6. 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 5% Raphael, a client of First Main Street Bank, deposits $200,000 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). Liabilities...
I am unsure if the first part of the answered question is correct, can you please explain how I can go about answering this 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% . Edison, a client of First Main Street Bank, deposits $500,000 into his checking account at First Main Street Bank. loans) Complete the following table to reflect any...
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%. Reserves (Dollars) Second Republic Required Reserves (Dollars) Excess Reserves (Dollars)
2.2. Complete the table below for the Third National Bank. You have to distinguish between a bank's assets and bank's liabilities. The figures in the table below are for the Third National Bank. All figures are in thousands of dollars. Assets Liabilities and Net Worth Stock Shares $ 420 $ _____ $ _____ Reserves 25 _____ _____ Property 300 ____ _____ Securities 100 ____ _____ Loans 100 ____ _____ Demand Deposits 105 ____ _____ 2.3. What is the total assets...
flew by SAT 1 In the following bank balance sheet, amounts are in millions of dollars. The required reserve ratio is 4% on the first $30 million of checkable deposits and 14% on any checkable deposits over $30 million. Assets Liabilities Reserves $26.5 Checkable deposits $180.0 Loans $150 Net worth $20.0 Securities $23.5 Total $200 Total $200 a. Calculate the bank's excess reserves. Excess reserves are 5 million (Enter your response rounded to one decimal place.) b. Suppose that the...