Homework Answers
Required Reserve Ratio = 10%
Excess Reserve Ratio = 10%
Total Reserve Ratio = 10% + 10% = 20%
Simple money multiplier = (1 / total reserve ratio) * 100
= (1 / 0.2) * 100
= 5
Total increase in Checkable Deposits = $1 million * 5 = $5 million
| Federal Reserve System | |||
| Assets | Liabilities | $1 million | |
| Securities | $1 million | ||
| Banking System | |||
| Assets | Liabilities | ||
| Securities | $1 million | Reserves | $1 million |
| Loans | $5 million | Checkable Deposits | $5 million |
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Question 4 If the Fed buys $1 million of bonds from the First National Bank, the...
Question 4 If the Fed buys $1 million of bonds from the First National Bank, the required reserve ratio is 10% and an a...
Question 4 If the Fed buys $1 million of bonds from the First National Bank, the required reserve ratio is 10% and an additional 10% of any deposit is held as excess reserves, what is the total increase in checkable deposits? (Hint: Use T-accounts to show what happens at each step of the multiple expansion process.)
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1) Suppose the Fed's required reserve ratio (REQ) is 20%. Further suppose that the Fed buys $100 million of U.S. Treasury securities from a dealer, Mary Jones, who deposits the check, which is drawn on the Fed, in her bank. This deposit increases her bank's reserve account (∆R) with the Fed by $100 million as well as its demand deposits, its total reserves, and the overall level of M1. What is the money multiplier?1) Suppose the Fed's required reserve ratio...
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Discussion Questions for Tuesday, Apr. 23 1. Suppose the Fed conducts $10 million open market pur...
Discussion Questions for Tuesday, Apr. 23 1. Suppose the Fed conducts $10 million open market purchase from Bank A. If Bank A and all the other banks use reserves to purchase only securities, what will happen to deposits in the banking system and how much does it expand? 2. Let's assume that in a hypothetical economy currency in circulation is $600 billion, the amount of checkable deposits is $900 billion, excess reserves are $15 billion and required reserve ratio is...
Third National Bank has reserves of $10,000 and checkable deposits of $100,000. The reserve ratio is 10 percent. Househo...
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The Third National Bank has reserves of $20,000 and checkable deposits of $100,000. The reserve ratio is 20 percent. Using balance sheet A, how would this look. How much excess reserves currently exist for the bank? Households deposit $5000 in currency into the bank that is added to reserves. (Show this addition on the balance sheet A. What level of excess reserves does the bank now have? Assuming the excess reserves become loans, what would this look like on the...
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Question 4 If the Fed buys $1 million of bonds from the First National Bank, the required reserve ratio is 10% and an additional 10% of any deposit is held as excess reserves, what is the total increase in checkable deposits? (Hint: Use T-accounts to show what happens at each step of the multiple expansion process.)
5. Suppose the FED buys $1 million bonds from a bank. Assume that the public does not want to hold any additional currency. a. what is the total increase in deposits in the economy if all banks keep 2% excess reserves (i.e. in addition to the 10% required by law)? (10 points) b. Describe the two first steps of the deposit creation process within the banking system. (10 points)
5. Suppose the FED buys $1 million bonds from a bank....
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...
If the Fed sells $15 million worth of government bonds to Bank A, then initially the amount of deposits held by Bank A will increase by $15 million. O the amount of reserves held by Bank A will decrease by $15 million. O the amount of bonds held by Bank A will decrease by $ 15 million. O the amount of deposits held by Bank A will decrease by $15 million. O the amount of reserves held by Bank A...
Discussion Questions for Tuesday, Apr. 23 1. Suppose the Fed conducts $10 million open market purchase from Bank A. If Bank A and all the other banks use reserves to purchase only securities, what will happen to deposits in the banking system and how much does it expand? 2. Let's assume that in a hypothetical economy currency in circulation is $600 billion, the amount of checkable deposits is $900 billion, excess reserves are $15 billion and required reserve ratio is...
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