Page 5 6. Use the following T-account information and the fact that the required reserve ratio in this economy is 0.10 (i.c., 10%) to answer the questions below (Show your work) Treasury dd T 30 Bonds 600 Bonds Fed 300 dd 270 B Loans to dd 30 Banks 200 T FRN 200 Public 1650 Loans from Banks 950 Banks Cash 30 dd p 1650 dd P dd 270 B Other Cash 100 Loans to Deposits 150 Bonds 100 Public 950 Loans from Other Bonds 100 Fed 200 Deposits 150 a. What are the Bank Reserves? b. What are the Bank Required Reserves? c. What are the Bank Excess Reserves? d. What is the current Money Supply (MI)? e. If Banks maximized their Loans to the Public, using up all their excess reserves, what will be the new Money Supply? f. The Fed did not like the new Money Supply and sold 50 in Bonds to Banks. After the banks bought the bonds, they have to call in loans from the public. What will be the new Money Supply end up being after the banks made the required changes? g. If the Banks refused the buy the 50 in bonds from the Fed and the Public bought the 50 in bonds, what would be the new Money Supply?

Principles of Economics 2e
2nd Edition
ISBN:9781947172364
Author:Steven A. Greenlaw; David Shapiro
Publisher:Steven A. Greenlaw; David Shapiro
Chapter27: Money And Banking
Section: Chapter Questions
Problem 31P: Humongous Bank is the only bank in the economy. The people in this economy have 20 million in money,...
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Page 5
6. Use the following T-account information and the fact that the required reserve ratio in this economy
is 0.10 (i.c., 10%) to answer the questions below (Show your work)
Treasury
dd
T
30 Bonds
600
Bonds
Fed
300 dd
270
B
Loans to
dd
30
Banks
200
T
FRN
200
Public
1650 Loans from
Banks 950
Banks
Cash
30 dd p
1650
dd
P
dd
270
B
Other
Cash
100
Loans to
Deposits
150
Bonds
100
Public
950 Loans from
Other
Bonds
100
Fed 200
Deposits
150
a. What are the Bank Reserves?
b. What are the Bank Required Reserves?
c. What are the Bank Excess Reserves?
d. What is the current Money Supply (MI)?
e. If Banks maximized their Loans to the Public, using up all their excess reserves, what will be the
new Money Supply?
f. The Fed did not like the new Money Supply and sold 50 in Bonds to Banks. After the banks bought
the bonds, they have to call in loans from the public. What will be the new Money Supply end
up being after the banks made the required changes?
g. If the Banks refused the buy the 50 in bonds from the Fed and the Public bought the 50 in bonds,
what would be the new Money Supply?
Transcribed Image Text:Page 5 6. Use the following T-account information and the fact that the required reserve ratio in this economy is 0.10 (i.c., 10%) to answer the questions below (Show your work) Treasury dd T 30 Bonds 600 Bonds Fed 300 dd 270 B Loans to dd 30 Banks 200 T FRN 200 Public 1650 Loans from Banks 950 Banks Cash 30 dd p 1650 dd P dd 270 B Other Cash 100 Loans to Deposits 150 Bonds 100 Public 950 Loans from Other Bonds 100 Fed 200 Deposits 150 a. What are the Bank Reserves? b. What are the Bank Required Reserves? c. What are the Bank Excess Reserves? d. What is the current Money Supply (MI)? e. If Banks maximized their Loans to the Public, using up all their excess reserves, what will be the new Money Supply? f. The Fed did not like the new Money Supply and sold 50 in Bonds to Banks. After the banks bought the bonds, they have to call in loans from the public. What will be the new Money Supply end up being after the banks made the required changes? g. If the Banks refused the buy the 50 in bonds from the Fed and the Public bought the 50 in bonds, what would be the new Money Supply?
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