All four affect the amount of funds in the banking system. a. Draw a diagram of...
All four affect the amount of funds in the banking system.
a. Draw a diagram of the Federal Funds market and show changes as a result of the following. (draw separate diagrams for each of these cases).
i. Fed lowers the discount rate
ii. Fed raises the interest rate on excess reserves
iii. Fed raises the required reserve ratio iv. The demand for federal funds shifts to the right
v. The demand for federal funds shifts to the left
Homework Answers
In following graphs, D0 and S0 are initial demand and supply curves of federal funds, intersecting at point A with initial federal funds rate r0 and quantity of federal funds Q0.
(i)
Lower discount rate will increase the supply of federal funds, shifting supply curve rightward. This will decrease federal funds rate and increase the quantity of federal funds.
In following graph, S0 shifts right to S1, intersecting D0 at point B with lower federal funds rate r1 and higher quantity of federal funds Q1.
(ii)
Higher interest rate on excess reserves rate will cause banks to keep more excess reserves and lend less, which will decrease the supply of federal funds, shifting supply curve leftward. This will increase federal funds rate and decrease the quantity of federal funds.
In following graph, S0 shifts left to S1, intersecting D0 at point B with higher federal funds rate r1 and lower quantity of federal funds Q1.
(iii)
Higher reserve ratio will mandate the banks to keep required reserves and lend less, which will decrease the supply of federal funds, shifting supply curve leftward. This will increase federal funds rate and decrease the quantity of federal funds.
In following graph, S0 shifts left to S1, intersecting D0 at point B with higher federal funds rate r1 and lower quantity of federal funds Q1.
(iv)
When demand curve shifts right, both federal funds rate and quantity of federal funds increase.
In following graph, D0 shifts right to D1, intersecting S0 at point B with higher federal funds rate r1 and higher quantity of federal funds Q1.
(v)
When demand curve shifts left, both federal funds rate and quantity of federal funds decrease.
In following graph, D0 shifts left to D1, intersecting S0 at point B with lower federal funds rate r1 and lower quantity of federal funds Q1.
Add Answer to:
All four affect the amount of funds in the banking system.
a. Draw a diagram of...
Economics question CH30: The Banking System and Money Supply Suppose a country's financial system has $500,000...
Economics question
CH30: The Banking System and Money Supply Suppose a country's financial system has $500,000 in deposits and banks keep 100% in reserves. After a period of time, banks decide to keep $100,000 in reserves while the Central Bank requires 10% reserve ratic i. What is the initial money supply? ii. What is the current amount of loans this banking system is making? iii. What is the money supply after loans are made? iv. Are there any excess reserves?...
4. Draw a supply-demand diagram for the market for reserves to answer each of the following...
4. Draw a supply-demand diagram for the market for reserves to answer each of the following questions. a. Show the effect on the federal funds rate and the quantity of reserves if the Fed simultaneously increased the reserve requirement and conducted an open market purchase of securities. Would the federal funds rate increase, decrease or would the effect be uncertain? b. Draw a graph showing an increase in the discount rate which increases the federal funds rate.
15. Suppose a bank has $3,000 in reserves, $25,000 of deposits, and a 10 percent reserve...
15. Suppose a bank has $3,000 in reserves, $25,000 of deposits, and a 10 percent reserve requirement. What is the amount of excess reserves? ________________________ 16. The U.S unemployment rate for November 2018 fell to 3.7%, the lowest since 2000 after sitting at 4.1% for six consecutive months. What does this tells us about the U.S economy? What it doesn’t tell us about the U.S economy? Is this a perfect indicator of the U.S labor market? Why/why not? ___________________________________________________________________ _______________________________________________________________________________________________________________________________________________________....
8. Federal funds rate targeting Aa Aa In conducting monetary policy, the Federal Open Market Committee (FOMC) targets a Federal funds rate and the Federal Reserve Bank of New York uses open-marke...
8. Federal funds rate targeting Aa Aa In conducting monetary policy, the Federal Open Market Committee (FOMC) targets a Federal funds rate and the Federal Reserve Bank of New York uses open-market operations to achieve and maintain the target rate. Suppose that the following graph shows the demand for Federal funds. Use the orange line (square symbols) to plot the supply of Federal funds (also called "the supply of excess reserves") when the FOMC targets a Federal funds rate of...
In which of the following cases does the quantity of money supply (MS) in the money...
In which of the following cases does the quantity of money supply (MS) in the money market decrease? a.The Fed buys bonds in open-market operations. b.The Fed raises the reserve requirement. c.The Fed decreases the interest rate it pays on reserves(on required and excess reserves). d.The Federal Open Market Committee (FOMC) decreases its target for the federal funds rate and market interest rates. e.The Fed decreases the discount rate that it charges banks. f.None of the above.
7. A decrease in the nonborrowed monetary base, everything else hela constant( the multiplier the same)...
7. A decrease in the nonborrowed monetary base, everything else hela constant( the multiplier the same) will cause the money supply D. Demand deposits to rise 8. Everything else held constant, a decrease in excess reserves will he money supply to rise c No change in will cause A. The money supply to rise B. The money supply to remain constant C. The money supply to fall D. Checkable deposits to rise 9. If the required reserve ratio is 15...
1. The interest rate in the federal funds market: a. is an interest rate that is...
1. The interest rate in the federal funds market: a. is an interest rate that is largely unaffected by the policies of the Fed. b. will fall if the Fed sells bonds and, thereby, reduces the reserves available to banks. c. is determined by the imposition of price controls imposed by the Fed. d. rises when the quantity of funds demanded by banks seeking additional reserves exceeds the quantity supplied by banks with excess reserves. 2. If there is a...
need all 5 answeres If the monetary base is $1,000 billion, checkable deposits are $2,000 billion,...
need all 5 answeres
If the monetary base is $1,000 billion, checkable deposits are $2,000 billion, the required reserve ratio is 10%, and excess reserves are $500 billion, then the currency in circulation are $500 billion, then 92,000 billion. A) $200 billion B) $300 billion. C) $450 billion. D) $700 billion. When the Federal Reserve wants to raise interest rates after banks have accumulated large amounts of excess reserves (i.e., when the supply curve intersects the demand curve at the...
9 In the U.S econormy the money supply is cot A) U.S Treasury. B) Federal Reserve...
9 In the U.S econormy the money supply is cot A) U.S Treasury. B) Federal Reserve System D) Senate Committee on Banking and Finance. 10. Ceteris paribus, if the Fed raised the required reserve ratio A) Banks could increase their lending B) The Federal funds interest rate would rise. The size of the monetary multiplier would decrease. D) The size of the monetary multiplier would increase. 11. Money is created when A) Loans are made. Checks written on one bank...
The Federal Reserve believes that a certain rate of interest on Federal Funds is associated with...
The Federal Reserve believes that a certain rate of interest on Federal Funds is associated with price stability (which is 2% rate of inflation). However, the Federal Funds rate tends to fluctuate with the changes in the demand for federal funds by the banking system. Hence, to maintain the Federal Funds rate at the desired rate or to raise it or lower it to a new rate the Federal Reserve System undertake open market operations, or few other measures. Draw...
Economics question
CH30: The Banking System and Money Supply Suppose a country's financial system has $500,000 in deposits and banks keep 100% in reserves. After a period of time, banks decide to keep $100,000 in reserves while the Central Bank requires 10% reserve ratic i. What is the initial money supply? ii. What is the current amount of loans this banking system is making? iii. What is the money supply after loans are made? iv. Are there any excess reserves?...
4. Draw a supply-demand diagram for the market for reserves to answer each of the following questions. a. Show the effect on the federal funds rate and the quantity of reserves if the Fed simultaneously increased the reserve requirement and conducted an open market purchase of securities. Would the federal funds rate increase, decrease or would the effect be uncertain? b. Draw a graph showing an increase in the discount rate which increases the federal funds rate.
8. Federal funds rate targeting Aa Aa In conducting monetary policy, the Federal Open Market Committee (FOMC) targets a Federal funds rate and the Federal Reserve Bank of New York uses open-market operations to achieve and maintain the target rate. Suppose that the following graph shows the demand for Federal funds. Use the orange line (square symbols) to plot the supply of Federal funds (also called "the supply of excess reserves") when the FOMC targets a Federal funds rate of...
7. A decrease in the nonborrowed monetary base, everything else hela constant( the multiplier the same) will cause the money supply D. Demand deposits to rise 8. Everything else held constant, a decrease in excess reserves will he money supply to rise c No change in will cause A. The money supply to rise B. The money supply to remain constant C. The money supply to fall D. Checkable deposits to rise 9. If the required reserve ratio is 15...
need all 5 answeres
If the monetary base is $1,000 billion, checkable deposits are $2,000 billion, the required reserve ratio is 10%, and excess reserves are $500 billion, then the currency in circulation are $500 billion, then 92,000 billion. A) $200 billion B) $300 billion. C) $450 billion. D) $700 billion. When the Federal Reserve wants to raise interest rates after banks have accumulated large amounts of excess reserves (i.e., when the supply curve intersects the demand curve at the...
9 In the U.S econormy the money supply is cot A) U.S Treasury. B) Federal Reserve System D) Senate Committee on Banking and Finance. 10. Ceteris paribus, if the Fed raised the required reserve ratio A) Banks could increase their lending B) The Federal funds interest rate would rise. The size of the monetary multiplier would decrease. D) The size of the monetary multiplier would increase. 11. Money is created when A) Loans are made. Checks written on one bank...
Most questions answered within 3 hours.
-
John is a home builder and contractor, and builds large
subdivisions. He is suing one of...
asked 2 minutes ago -
A bag contains 4 red, 6 orange, and 8 green jellybeans. What is
the probability of...
asked 11 minutes ago -
A driver in a moving car applies the brakes. The car slows to a
final speed...
asked 15 minutes ago -
Part a:
Write a Matlab code that generate Exponential Function.
Part b
Write a Matlab code...
asked 19 minutes ago -
A laboratory test for a disease afflicting 5% of the population
is either positive, indicating the...
asked 35 minutes ago -
The reaction A → B + C is known to be first order in A. Below...
asked 39 minutes ago -
You place a 22-cm focal length convex lens at a distance of 50
cm in front...
asked 46 minutes ago -
Create an NFA with four states I, II, III, IV. The NFA should
recognize the language...
asked 40 minutes ago -
18. Which of the following symbols represents a neutron in
nuclear chemistry?
a. 11 p
b....
asked 54 minutes ago -
in c#
1- What is the output for total after the following segment of
code executes?...
asked 1 hour ago -
Select the two statements that correctly describe the catalytic
mechanism of lysozyme.
• Formation of a...
asked 1 hour ago -
(Summarize your thoughts to the below post)
The Disney company is notorious coming up with different...
asked 1 hour ago