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Question 9 A. ECB Bank is a commercial bank in Country A. The T-account of ECB Bank is shown below: Assets Liabilities (millions) (millions) Reserves $100,000 Deposits $200,000 Loans $100,000 i. If the commercial banks in Country A are required to maintain a reserve ratio of 8%, how much excess reserves are now held by ECB Bank? i. If ECB Bank decides not to hold excess reserves, by how much will the economy's money supply increase or decrease? Explain. B: Assume the Central Bank of Country A requires a reserve ratio of 8% and banks in Country A do not hold excess reserves currently. i. If the Central Bank now has a target to increase the economy's money supply by $4,000 million, what amount of bonds will the government need to buy or sell? ii. Assume the Central Bank conducts the open-market operations, state one situation that might cause the increase in the economy's money supply to be lower than the Central Bank's target?

Question 9 A. ECB Bank is a commercial bank in Country A. The T-account of ECB Bank is shown below: Assets Liabilities (millions) (millions) Reserves $100,000 Deposits $200,000 Loans $100,000 i. If the commercial banks in Country A are required to maintain a reserve ratio of 8%, how much excess reserves are now held by ECB Bank? i. If ECB Bank decides not to hold excess reserves, by how much will the economy's money supply increase or decrease? Explain. B: Assume the Central Bank of Country A requires a reserve ratio of 8% and banks in Country A do not hold excess reserves currently. i. If the Central Bank now has a target to increase the economy's money supply by $4,000 million, what amount of bonds will the government need to buy or sell? ii. Assume the Central Bank conducts the open-market operations, state one situation that might cause the increase in the economy's money supply to be lower than the Central Bank's target?

Principles of Economics 2e
Principles of Economics 2e
2nd Edition
ISBN:9781947172364
Author:Steven A. Greenlaw; David Shapiro
Publisher:Steven A. Greenlaw; David Shapiro
Chapter27: Money And Banking
Section: Chapter Questions
Problem 31P: Humongous Bank is the only bank in the economy. The people in this economy have 20 million in money,...
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Question 9 A. ECB Bank is a commercial bank in Country A. The T-account of ECB Bank is shown below: Assets Liabilities (millions) (millions) Reserves $100,000 Deposits $200,000 Loans $100,000 i. If the commercial banks in Country A are required to maintain a reserve ratio of 8%, how much excess reserves are now held by ECB Bank? i. If ECB Bank decides not to hold excess reserves, by how much will the economy's money supply increase or decrease? Explain. B: Assume the Central Bank of Country A requires a reserve ratio of 8% and banks in Country A do not hold excess reserves currently. i. If the Central Bank now has a target to increase the economy's money supply by $4,000 million, what amount of bonds will the government need to buy or sell? ii. Assume the Central Bank conducts the open-market operations, state one situation that might cause the increase in the economy's money supply to be lower than the Central Bank's target?
Transcribed Image Text:Question 9 A. ECB Bank is a commercial bank in Country A. The T-account of ECB Bank is shown below: Assets Liabilities (millions) (millions) Reserves $100,000 Deposits $200,000 Loans $100,000 i. If the commercial banks in Country A are required to maintain a reserve ratio of 8%, how much excess reserves are now held by ECB Bank? i. If ECB Bank decides not to hold excess reserves, by how much will the economy's money supply increase or decrease? Explain. B: Assume the Central Bank of Country A requires a reserve ratio of 8% and banks in Country A do not hold excess reserves currently. i. If the Central Bank now has a target to increase the economy's money supply by $4,000 million, what amount of bonds will the government need to buy or sell? ii. Assume the Central Bank conducts the open-market operations, state one situation that might cause the increase in the economy's money supply to be lower than the Central Bank's target?
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