Now suppose the Central Bank Authority on Country X is concerned about the Inflation that government's...
Now suppose the Central Bank Authority on Country X is concerned about the Inflation that government's expansionary fiscal policy may yield, and so it raises the Reserve Requirements from 7% to 15%.
(a) If the total deposits on a month are equal to $200mi, what is the value of Excess Reserves under the new requirements?
(b) How much money could the banking system potentially create?
Homework Answers
a) total deposits are equal to $200 million. Reserve requirement is 15%. Therefore the amount of reserves will be 15% of 200 or $30 million. Required reserves are $30 million and the remaining $170 million are excess reserves
b) money multiplier is 1 / required reserves ratio = 1/15% = 6.67. total money created in the banking system = 200*6.67 = $1333.33 million
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Now suppose the Central Bank Authority on Country X is concerned
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liabilities of a bank:
a. The Fed sets a reserve requirement of 3% on deposits between
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this bank is able to make to the public. b. What is the value of
the money multiplier? [Money Multiplier =...
2. A simple banking model. A bank raises funds by accepting deposits D in order to make loans L. The central bank requires that the bank hold a minimum quantity of reserves R in proportion to its deposits: where ρ is the required reserve ratio. You should assume that the bank does not hold excess reserves and has no capital. The hank is competitive ad takes the leding rate r, and the competitive and takes the lending rate rL and...
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The amount of reserves that a commercial bank is required to
hold is equal to:
Question 1 options:
the amount of its checkable deposits.
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its checkable deposits divided by its total assets.
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