Green Valley bank currently has Rs 1,000 million in transaction deposits on its balance sheet. Central bank currently set the reserve requirement at 10 percent of transaction deposits. a. If the central bank decreases its reserve requirement to 6 percent, show the balance sheet of Green Valley bank and central bank system just before and after the full effect of the reserve requirement change. Assume Green Valley bank withdraws all excess reserve and gives out loans, that borrowers eventually return all these funds to Green Valley bank in the form of transaction deposits. b. Redo part (a) using 14 percent reserve requirement.
Green Valley bank currently has Rs 1,000 million in transaction deposits on its balance sheet. Central bank currently set the reserve requirement at 10 percent of transaction deposits. a. If the central bank decreases its reserve requirement to 6 percent, show the balance sheet of Green Valley bank and central bank system just before and after the full effect of the reserve requirement change. Assume Green Valley bank withdraws all excess reserve and gives out loans, that borrowers eventually return all these funds to Green Valley bank in the form of transaction deposits. b. Redo part (a) using 14 percent reserve requirement.
Principles of Economics 2e
2nd Edition
ISBN:9781947172364
Author:Steven A. Greenlaw; David Shapiro
Publisher:Steven A. Greenlaw; David Shapiro
Chapter28: Monetary Policy And Bank Regulation
Section: Chapter Questions
Problem 39P: Suppose the Fed conducts an open market sale by selling $10 million in Treasury bonds to Acme Bank....
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Transcribed Image Text:Problem 2.8.
Effect of changes in
reserve ratio
Green Valley bank currently has Rs 1,000 million in transaction deposits on its
balance sheet. Central bank currently set the reserve requirement at 10 percent of
transaction deposits.
a. If the central bank decreases its reserve requirement to 6 percent, show the balance
sheet of Green Valley bank and central bank system just before and after the full
effect of the reserve requirement change. Assume Green Valley bank withdraws all
excess reserve and gives out loans, that borrowers eventually return all these funds
to Green Valley bank in the form of transaction deposits.
b. Redo part (a) using 14 percent reserve requirement.
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