1.14 Read the following quote and answer questions 1.14 -1.16 "China's central bank Monday conducted a total of 10 billion yuan (about $1.4 billion) of reverse repos to maintain liquidity in the banking system. The interest rate for the seven-day reverse repos was set at 2 percent, according to the People's Bank of China. The move aims to keep stable liquidity in the banking system, the central bank said. A reverse repo is a process in which the central bank purchases securities from commercial banks through bidding, with an agreement to sell them back in the future." The area of responsibility that China's central bank is undertaking with the above decision is that of: a) Fiscal policy. b) Service to the government. c) Provision of economic and statistical services. d) Maintaining financial stability. The measure of money that will not be immediately affected by the above action by China's central bank is: 1.15 a) M1 b) M2 c) M3 d) Quasi money The policy instrument that China's central bank is making use of here is that of: a) Fiscal policy b) Open market policy. c) Public debt management. d) Intervention in foreign exchange markets. 1.16

1.14 Read the following quote and answer questions 1.14 -1.16 "China's central bank Monday conducted a total of 10 billion yuan (about $1.4 billion) of reverse repos to maintain liquidity in the banking system. The interest rate for the seven-day reverse repos was set at 2 percent, according to the People's Bank of China. The move aims to keep stable liquidity in the banking system, the central bank said. A reverse repo is a process in which the central bank purchases securities from commercial banks through bidding, with an agreement to sell them back in the future." The area of responsibility that China's central bank is undertaking with the above decision is that of: a) Fiscal policy. b) Service to the government. c) Provision of economic and statistical services. d) Maintaining financial stability. The measure of money that will not be immediately affected by the above action by China's central bank is: 1.15 a) M1 b) M2 c) M3 d) Quasi money The policy instrument that China's central bank is making use of here is that of: a) Fiscal policy b) Open market policy. c) Public debt management. d) Intervention in foreign exchange markets. 1.16

Brief Principles of Macroeconomics (MindTap Course List)

8th Edition

ISBN:9781337091985

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter11: The Monetary System

Section: Chapter Questions

Problem 2PA

See similar textbooks

Similar questions

What is the formula for the money multiplier?
Suppose the Fed conducts an open market purchase by buying 10 million in Treasury bonds from Acme Bank. Sketch out the balance sheet changes that will occur as Acme converts the bond sale proceeds to new loans. The initial Acme bank balance sheet contains the following information: Assets - reserves 30, bonds 50, and loans 50; Liabilities - deposits 300 and equity 30.
How is a central bank different from a typical commercial bank?
Explain what would happen if banks were notified they had to increase their required reserves by one percentage point from, say, 9 to 10 of deposits. What would their options be to come up with the cash?
Why does contractionary monetary policy cause interest rates to rise?
How do the expansionary and contractionary monetary policy affect the quantity of money?
Your bank has the following balance sheet. Assets: Rate-sensitive $200 million Fixed-rate 100 million Liabilities: Rate-sensitive $150 million Fixed-rate 150 million (a) If the interest rates in the economy go down by 3%, will profits increase or decrease? Show your work and calculate the numerical value of the change of profits (b) Briefly explain why profits increase/decrease according to your answer in part (a) (c) Is there anything that you could do to keep your bank from being so vulnerable to interest rate movements? Give the answer of all.
A group of college friends decide to start their own bank, LSU Community Bank, in rural Pennsylvania. In order to get started they put in a total of $10 million of their own money and borrow $40 million from a venture debt lender. (This is known as venture debt lending.) They accept $160 million in deposits from households and businesses in the community, and, in turn, make $90 million in loans. They also purchase $95 million of mortgage-backed securities and keep the remainder of their assets as reserves at the Philadelphia Federal Reserve District Bank. a. Show LSU Community Bank's balance sheet. b. What is LSU Community Bank's reserve-deposit ratio? c. What is LSU Community Bank's asset to equity ratio?
A group of college friends decide to start their own bank, LSU Community Bank, in rural Pennsylvania. In order to get started they put in a total of $10 million of their own money and borrow $40 million from a venture debt lender. (This is known as venture debt lending.) They accept $ 160 million in deposits from households and businesses in the community, and, in turn, make $ 90 million in loans. They also purchase $ 95 million of mortgage-backed securities and keep the remainder of their assets as reserves at the Philadelphia Federal Reserve District Bank. a. Show LSU Community Bank's balance sheet. b. What is LSU Community Bank's reserve-deposit ratio? C. What is LSU Community Bank's asset to equity ratio? d. Suppose the housing market tanks and the market value of the bank's mortgage-backed securities falls by 10%. i. Show LSU Community Bank's new balance sheet. ii. By what percentage does the value of the bank's assets fall? iii. By what percentage does the value of the bank's…
The Bank of Romovia, which is the highest financial institution in Romovia, has bought treasury bonds worth $2.2 billion from a private bank. How will this transaction affect the balance sheets of the private bank and the Bank of Romovia?
Assuming an economy have only two commercial banks in it banking system, Classic Bank and Prudent Bank. The following shows the balance sheet of the two banks as at 2019. Classic Bank Balance sheet as at December, 2019 GHSm GHSm Assets: Liabilities & Equity: Reserves 1,000 Deposits 3,000 Securities 2,000 Equity 7,000 Loans & Advances 1,000 Property, Plant and Equipment 6,000 . 10,000 10,000 Prudent Bank Balance sheet as at December, 2019 GHSm GHSm Assets: Liabilities & Equity: Reserves 600 Deposits 2,500 Securities 1,500 Equity 4,400 Loans & Advances 800 Property, Plant and Equipment 4,000 . 6,900 6,900 Assume a required reserve ratio of 10%. What is the maximum amount that the money supply can be expanded? What would be the effect of a fall in reserve ratio to 5%, on the maximum amount that the money supply can be expanded?
Which of the following factors pose a limit on the ability of commercial banks to increase the quantity of money in circulation by extending new loans? Select one or more: a. the quantity of Central Bank reserves that they own b. the quantity of money that savers lent to them by opening deposits c. the behavior of households and firms, which reduce the quantity of money in circulation by repaying previous loans. d. the availability of profitable lending opportunities in the economy e. the willingness of household and firms to take up new debts at the given interest rate