Checking accounts and deposits are as good as/substitutable for actual cash or currency. What role does...
Checking accounts and deposits are as good as/substitutable for actual cash or currency. What role does this fact play in the money creation process that is inherent to fractional reserve banking?
Homework Answers
Instead of keeping currency in hand, people tend to deposit their cash in checking accounts or deposits with banks. While cash is the most liquid form of money, there is an opportunity cost of holding money which is the interest rate that deposits tend to offer. These deposits which are kept at banks are used by banks to lend to other lenders in form or loans e.g. if there is a deposit of 100, because of fractional reserve banking, banks will only keep a fraction of this deposit let's say 20 and use the rest for money creation i.e give 80 as loans. This extra 80 that is being passed on as loans is actually the process of creation of money that occurs because of fractional reserve system.
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Checking accounts and deposits are as good as/substitutable for
actual cash or currency. What role does...
The reserve requirement sets the required percentage of vault cash plus deposits with the regional Federal...
The reserve requirement sets the required percentage of vault cash plus deposits with the regional Federal Reserve Banks that banks must keep for their deposits. Many banks have widespread branches and ATMs. How would the existence of branches and ATMs affect the level of excess reserves (above those required) that banks are able to hold? ATMs require a lot of vault cash, thus increasing excess reserves. ATMs increase excess reserves, which increases the money multiplier. The existence of ATMs does...
What are checkable deposits? Savings accounts Checking accounts. Government bonds Currency
What are checkable deposits? Savings accounts Checking accounts. Government bonds Currency
What is the role of the fractional reserve banking system in determining the money supply and...
What is the role of the fractional reserve banking system in determining the money supply and the money multiplier? How does this role explain the importance of the banking system to a market-based economy and the importance of regulations to ensure the stability of the banking system?
Answer the following questions: a) If a bank depositor deposits $1,000 of currency to his checking...
Answer the following questions: a) If a bank depositor deposits $1,000 of currency to his checking account, what happens to reserves, checkable deposits, and the monetary base? b) If the Fed buys bonds worth $2 million from the First National Bank, what happens to reserves and the monetary base? Use T-accounts to explain your answer c) If the Fed sells $2 million of bonds to Irving the Investor, who pays for the bonds with a check, what happens to reserves...
Savings deposits = $2221.5b Demand Deposits = $1880.6b Required reserve ratio = 9% Currency in circulation...
Savings deposits = $2221.5b Demand Deposits = $1880.6b Required reserve ratio = 9% Currency in circulation = $1100.0b Vault Cash = $91.5b Household money market mutual fund = $1753.3b Certificates of deposit (value< $100,000) = $2450.0b Banking system deposits with the Fed = $208.2b Household money market deposits accounts = $1588b Certificates of deposit (value > $100,000) = $4827.6b Institutional money market accounts = $3864.3b Treasury Bills = $458.3b a. Calculate the MB. b. Calculate m1 as illustrated in practice...
1. Suppose that currency in circulation is $600 billion, the amount of checkable deposits is $900...
1. Suppose that currency in circulation is $600 billion, the amount of checkable deposits is $900 billion, required reserve on checkable deposits is 10% and excess reserves are $15 billion. a. Calculate the money supply, the currency deposit ratio, the excess reserve ratio, and the money multiplier. Suppose the central bank conducts an unusually large open market purchase of bonds held by banks of $1400 billion due to a sharp contraction in the economy. Assuming the ratios, you calculated in...
pls do 35-40 35. When moving $500 from your checking account to your savings account this...
pls do 35-40
35. When moving $500 from your checking account to your savings account this transaction will impact the M1 and M2 money supplies by a. decreasing the M1 by $500. The M2 will be unchanged. b. decreasing the M1 by $500 and increasing the M2 by $500. c. not affecting the M1. But the M2 will increase by $500. d. not affecting the M1 and M2. Both will be unchanged. 36. The funds that banks are required by...
1.) Gold, silver, and furs, when used as money, are referred to as fiat money precious...
1.) Gold, silver, and furs, when used as money, are referred to as fiat money precious money paper currency commodity money exchange money 2.) The money supply is considered to be M1. M1 consists of what? currency + checking account balances + saving account balances currency + checking account balances + travelers' checks currency + checking account balances + credit cards currency + credit cards + certificates of deposit currency only 3.) The main purpose of financial intermediaries is that...
1.)The ____________ is the sum of currency and reserve deposits, the monetary _________ of the central...
1.)The ____________ is the sum of currency and reserve deposits, the monetary _________ of the central bank A.)money stock; assets B.)money stock; liabilities C.)monetary base; liabilities D.)monetary base; assets 2.)Time deposits are ______ liquid than savings deposits and typically earn a _________ interest rate than savings deposits. A.)less; higher B.)more; higher C.)more; lower D.)less; lower 3.)If banks must hold $2 in reserves for each $10 in deposits, and the public decides to hold $3 in currency for each $10 in...
1. A: what is the public good that a central bank provides? does it justify the...
1. A: what is the public good that a central bank provides? does it justify the existence of the central bank in the government sector? Explain B) What is the yield to maturity on a $10,000 face value discount bond maturing in one year that sells for $9,600? Show work C) suppose the credit rating agencies have upgraded the ratings of a bond issued by xyz inc. from speculative grade to investment grade.. What effect will it have on the...
Answer the following questions: a) If a bank depositor deposits $1,000 of currency to his checking account, what happens to reserves, checkable deposits, and the monetary base? b) If the Fed buys bonds worth $2 million from the First National Bank, what happens to reserves and the monetary base? Use T-accounts to explain your answer c) If the Fed sells $2 million of bonds to Irving the Investor, who pays for the bonds with a check, what happens to reserves...
1. Suppose that currency in circulation is $600 billion, the amount of checkable deposits is $900 billion, required reserve on checkable deposits is 10% and excess reserves are $15 billion. a. Calculate the money supply, the currency deposit ratio, the excess reserve ratio, and the money multiplier. Suppose the central bank conducts an unusually large open market purchase of bonds held by banks of $1400 billion due to a sharp contraction in the economy. Assuming the ratios, you calculated in...
pls do 35-40
35. When moving $500 from your checking account to your savings account this transaction will impact the M1 and M2 money supplies by a. decreasing the M1 by $500. The M2 will be unchanged. b. decreasing the M1 by $500 and increasing the M2 by $500. c. not affecting the M1. But the M2 will increase by $500. d. not affecting the M1 and M2. Both will be unchanged. 36. The funds that banks are required by...
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