Imagine that the banking system's balance sheet can be represented by the following t-account: Assets LIABILITIES AND NET WORTH RESERVES 200 DEPOSITS 2000 BONDS 800 LOANS 1000 NETWORTH 0 TOTAL 2000 TOTAL 2000 Assuming the bank is "loaned up" the required reserve ratio is ___________ (round to two decimal places) The money multiplier is ___________ Imagine that the central bank uses open market operations to buy $300 worth of bonds from the bank above. Fill in the following t-account assuming that the money multiplier has taken its full effect: ASSETS LIABILITIES AND NET WORTH RESERVES __?___ DEPOSITS ___?__ BONDS ____?___ LOANS ____?____ NET WORTH ___?___ TOTAL _____?______ TOTAL ___?___
Imagine that the banking system's balance sheet can be represented by the following t-account: Assets LIABILITIES AND NET WORTH RESERVES 200 DEPOSITS 2000 BONDS 800 LOANS 1000 NETWORTH 0 TOTAL 2000 TOTAL 2000 Assuming the bank is "loaned up" the required reserve ratio is ___________ (round to two decimal places) The money multiplier is ___________ Imagine that the central bank uses open market operations to buy $300 worth of bonds from the bank above. Fill in the following t-account assuming that the money multiplier has taken its full effect: ASSETS LIABILITIES AND NET WORTH RESERVES __?___ DEPOSITS ___?__ BONDS ____?___ LOANS ____?____ NET WORTH ___?___ TOTAL _____?______ TOTAL ___?___
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Question
Imagine that the banking system's balance sheet can be represented by the following t-account:
| Assets | LIABILITIES AND NET WORTH | ||
| RESERVES | 200 | DEPOSITS | 2000 |
| BONDS | 800 | ||
| LOANS | 1000 | NETWORTH | 0 |
| TOTAL | 2000 | TOTAL | 2000 |
Assuming the bank is "loaned up" the
The money multiplier is ___________
Imagine that the central bank uses open market operations to buy $300 worth of bonds from the bank above. Fill in the following t-account assuming that the money multiplier has taken its full effect:
| ASSETS | LIABILITIES AND NET WORTH | ||
| RESERVES | __?___ | DEPOSITS | ___?__ |
| BONDS | ____?___ | ||
| LOANS | ____?____ | NET WORTH | ___?___ |
| TOTAL | _____?______ | TOTAL | ___?___ |
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Step 1: Introduce the problem
VIEWStep 2: Calculate the required reserve ratio and money multiplier for the banking system
VIEWStep 3: Calculate deposit creation, loan creation and required reserve when a central bank buys $300 bonds
VIEWStep 4: Prepare the new T-account using data from step 2 and step 3.
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