Need answers for number 2 II. PROBLEMSSuppose that the economy has the following money supply and demand equations:Money Supply: M = 8000Money Demand: M= 10,000 – 40,000rwhere money is in billions of dollars and interest rates, r, is written as a decimal(e.g., an interest rate of 10% would be written as .1 in the equation).A. Determine the equilibrium interest rate and quantity of money.B. What will happen in the money market if the interest rate is currently 10%?What is the amount of excess supply of or excess demand for money?C. Show in graph that at this interest rate (10%) there is disequilibrium in themoney market.2. Assume that a particular bank has excess reserves of Php800,000 and checkabledeposits of Php1,500,000. If the reserve ratio is 20%, what is the size of the bank'sactual reserves?3. Suppose that GRAB Bank is a newly created bank in your hometown. Consider thefollowing transactions:Owners of the bank sold shares of stocks to the public (which includes owners'equity) amounting to P1,000,000.To fully operate, GRAB Bank purchased physical assets amounting toP500,000 (with approximate useful life of assets of 20 years and salvage valueapproximated at P100,000).First deposit to the bank (in the form of checkable deposits) was accepted fromindividuals and business firms amounting to P200,000.Now suppose that the BSP mandated all commercials banks to keep a fractionout of the total deposit valued at 25%Required: Trace the changes in GRAB Bank's balance sheet, starting with the firsttransaction up to the last transaction cited above.

Answer for #2 The reserve ratio is the portion of deposits that commercial banks must hold onto,…

Answered: 2. Assume that a particular bank has…

2. Assume that a particular bank has excess reserves of Php800,000 and checkable deposits of Php1,500,000. If the reserve ratio is 20%, what is the size of the bank's actual reserves?

Essentials of Economics (MindTap Course List)

8th Edition

ISBN:9781337091992

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter24: The Influence Of Monetary And Fiscal Policy On Aggregate Demand

Section: Chapter Questions

Problem 1PA

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Question

Need answers for number 2

II. PROBLEMS
Suppose that the economy has the following money supply and demand equations:
Money Supply: M = 8000
Money Demand: M= 10,000 – 40,000r
where money is in billions of dollars and interest rates, r, is written as a decimal
(e.g., an interest rate of 10% would be written as .1 in the equation).
A. Determine the equilibrium interest rate and quantity of money.
B. What will happen in the money market if the interest rate is currently 10%?
What is the amount of excess supply of or excess demand for money?
C. Show in graph that at this interest rate (10%) there is disequilibrium in the
money market.
2. Assume that a particular bank has excess reserves of Php800,000 and checkable
deposits of Php1,500,000. If the reserve ratio is 20%, what is the size of the bank's
actual reserves?
3. Suppose that GRAB Bank is a newly created bank in your hometown. Consider the
following transactions:
Owners of the bank sold shares of stocks to the public (which includes owners'
equity) amounting to P1,000,000.
To fully operate, GRAB Bank purchased physical assets amounting to
P500,000 (with approximate useful life of assets of 20 years and salvage value
approximated at P100,000).
First deposit to the bank (in the form of checkable deposits) was accepted from
individuals and business firms amounting to P200,000.
Now suppose that the BSP mandated all commercials banks to keep a fraction
out of the total deposit valued at 25%
Required: Trace the changes in GRAB Bank's balance sheet, starting with the first
transaction up to the last transaction cited above.

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