1. If Ernie deposits $500 in the bank, money supply will increase by 90% of $500 i.e $450. So, total money supply in the market will be 1900 + 450 = $2350.
2. Bank can loan a maximum of 90% of $10,000 i.e $9000.
3. Mark can improve his business in following ways.
a) Invest in marketing his business. Effective marketing has a high ROI. It will increase Mark's sales and will help in improving his services. Increased spending and increased sales will help increase Jobs, reduce unemployment in the market and eventually help increase the GDP of the country.
b) Expand his operations to other cities. This will again help him improve his sales and earn higher profits. Increased Sales help in eventually increasing the GDP of the country.
4. Following are the 5 main functions of Federal Reserve System.
i) Conducting Monetary Policy : This the main Function.It is the actions taken by the Federal Reserve to influence the supply of money and credit in order to promote price stability and maintain maximum sustainable economic growth.
ii) Promoting Financial System Stability. For this Federal Reserve closely monitors the links between investors, Savers, Borrowers and Business in US and abroad.
iii) Supervising and regulating financial institutions and activities
iv) Fostering payment and settlement system safety and efficiency
v) Promoting consumer protection and community development
Background Sarah Saver goes to Fancy National Bank and deposits $1,000 that she earned from her...
Money Multiplier Scenario Sarah Saver goes to Investors National Bank and deposits $1,000 that she came from her summer job. She now has a checking account with a balance of $1,000 from which she can write checks. What will Investors National Bank do with this newly deposited money? Well, if there is a 10 percent reserve requirement, the bankers will put $100 in their vault and lend out the rest to people who need loans, Say Ernie Entrepreneur walks into...
Assume that Elliott deposits $1,000 in coins he collected into his checking account. The required reserve ratio for the banking system is 10% and Elliott’s bank was fully loaned up prior to his deposit. Explain the immediate effect of his deposit on the M1 measure of the money supply. Calculate the following: the maximum amount the bank will loan out the maximum increase in the money supply as a result of this transaction Now assume that the Federal Reserve purchases...
Suppose that the first national bank currently holds a total of 37 million dollars in deposits from over 120,000 clients. At the same time, the total amount of loans people owe the bank is 17 million dollars, and the bank cannot legally issue more loans without attracting additional deposits. Assume that the bank currently has 2 million dollars in cash and 2 million dollars worth of securities invested in the financial market. The bank also owns some physical assets, such...
Answer Point Value Points Earned American Credit Union First National Bank Hillsboro Bank Internet Bank ATM Charges Home bank Free Free Free Free $1 4 free then $2 per use $3 $500 $200 $5 $6 Use of service at competitor's bank Checking Account Minimum balance required to avoid fees $400 $250 Monthly Maintenance Fee $13 7 free checks, then $1 per Per Check Processing Fees Unlimited check 1. Selecting a Bank. Sean wants to open a checking account with $275....
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...
Ml equals currency + demand deposits + A)nothing else B)othere checkable deposits. C)traveler's checks + other checkable deposits. D)traveler's checks + other checkable deposits -+ savings deposits 2. If you deposit $100 of currency into a demand deposit at a bank, this action by itself A)does not change the money supply. B)increases the money supply. C)decreases the money supply. D)has an indeterminate effect on the money supply. 3. The manager of the bank where you work tells you that your...
QUESTION 5 Suppose that the first national bank currently holds a total of 49 million dollars in deposits from over 120,000 clients. At the same time, the total amoun of loans people owe the bank is 16 million dollars, and the bank cannot legally issue more loans without attracting additional deposits. Assume that the bank currently has 5 million dollars in cash and 1 million dollars worth of securities invested in the financial market. The bank also owns some physical...
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...
Stacy deposits $1,000 in her checking account. The bank ends up loaning $400 from the $1,000 to another customer, and placing $600 in the bank’s vault. Thus, as a result of Stacey’s deposit and the bank’s actions, the money supply has Select one: a. Declined by $400. b. Declined by $200. c. Increased by $400. d. Increased by $200.
Jane currently has $5,700 in her savings account and $2,000 in her checking account at the local bank. Instructions: Use a positive number to represent an increase and a negative number to represent a decrease. a. Suppose she withdraws $350 in cash from her savings account. By what dollar amount does the country's money supply (M1 and M2) change as a result of Jane's actions?b. Now suppose instead that Jane withdraws $350 from her checking account and uses $190 of this money to pay her federal...