Include correctly labeled diagrams, if useful or required, in explaining your answers. A correctly labeled diagram must have all axes and curves clearly labeled and must show directional changes. If the question prompts you to “Calculate,” you must show how you arrived at your final answer. The following is the balance sheet for Garrett Bank, one of many commercial banks in a country. Assume a 10 percent reserve requirement. ASSETS LIABILITIES Reserves – $5,000 Demand Deposits – $20,000 Business Loans – $10,000 Equity – $5,000 Student Loans – $8,000 Government Loans – $2,000 TOTAL ASSETS – $25,000 TOTAL LIABILITIES – $25,000 Calculate Garrett Bank’s required reserves. Calculate the maximum amount of additional loans that Garrett Bank can make without selling its holdings of government securities. Assuming that Garrett Bank and other banks now lend out all excess reserves, calculate the maximum possible change in demand deposits throughout the banking system. Assume that the country’s actual output is less than full employment output. Draw an AD/AS model, labelling current output , Y1, and full-employment output, Ye. Identify one monetary policy option this country’s central bank has to push the economy towards full employment output, and draw a money market graph showing the effect of this policy. Identify the change in nominal interest rate, and explain how this change would affect Aggregate Demand.
Include correctly labeled diagrams, if useful or required, in explaining your answers. A correctly labeled diagram must have all axes and curves clearly labeled and must show directional changes. If the question prompts you to “Calculate,” you must show how you arrived at your final answer. The following is the balance sheet for Garrett Bank, one of many commercial banks in a country. Assume a 10 percent reserve requirement. ASSETS LIABILITIES Reserves – $5,000 Demand Deposits – $20,000 Business Loans – $10,000 Equity – $5,000 Student Loans – $8,000 Government Loans – $2,000 TOTAL ASSETS – $25,000 TOTAL LIABILITIES – $25,000 Calculate Garrett Bank’s required reserves. Calculate the maximum amount of additional loans that Garrett Bank can make without selling its holdings of government securities. Assuming that Garrett Bank and other banks now lend out all excess reserves, calculate the maximum possible change in demand deposits throughout the banking system. Assume that the country’s actual output is less than full employment output. Draw an AD/AS model, labelling current output , Y1, and full-employment output, Ye. Identify one monetary policy option this country’s central bank has to push the economy towards full employment output, and draw a money market graph showing the effect of this policy. Identify the change in nominal interest rate, and explain how this change would affect Aggregate Demand.
Chapter16: Monetary Policy
Section: Chapter Questions
Problem 1SQP
Related questions
Question
Include correctly labeled diagrams, if useful or required, in explaining your answers. A correctly labeled diagram must have all axes and
- The following is the balance sheet for Garrett Bank, one of many commercial banks in a country. Assume a 10 percent reserve requirement.
| ASSETS | LIABILITIES |
| Reserves – $5,000 | |
| Business Loans – $10,000 | Equity – $5,000 |
| Student Loans – $8,000 | |
| Government Loans – $2,000 | |
| TOTAL ASSETS – $25,000 | TOTAL LIABILITIES – $25,000 |
- Calculate Garrett Bank’s
required reserves. Calculate the maximum amount of additional loans that Garrett Bank can make without selling its holdings of government securities.
- Assuming that Garrett Bank and other banks now lend out all
excess reserves , calculate the maximum possible change in demand deposits throughout the banking system.
-
- Assume that the country’s actual output is less than full employment output. Draw an AD/AS model, labelling current output , Y1, and full-employment output, Ye.
-
- Identify one
monetary policy option this country’s central bank has to push the economy towards full employment output, and draw amoney market graph showing the effect of this policy.
- Identify one
-
- Identify the change in nominal interest rate, and explain how this change would affect Aggregate Demand.
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