# Question 9A. ECB Bank is a commercial bank in Country A. The T-account of ECB Bank is shown below:AssetsLiabilities(millions)(millions)Reserves\$100,000Deposits\$200,000Loans\$100,000i.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'smoney supply increase or decrease? Explain.B:Assume the Central Bank of Country A requires a reserve ratio of 8% and banks inCountry A do not hold excess reserves currently.i.If the Central Bank now has a target to increase the economy's money supply by \$4,000million, 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 thatmight cause the increase in the economy's money supply to be lower than the CentralBank's target?

Question
2 views

Need solutions for question 9. Pinned Below

check_circle

Step 1

A.

(i) It is given that RRR (Required Reserve Ratio) = 8% and deposits = 200,000; therefore,

Excess reserves = 1/RRR * Deposits

Excess reserves = 1/0.08 * 200,000

Excess reserves = 84,000

Thus, the ECB bank of country A will hold an excess reserve of \$84,000.

(ii) Since, the excess reserves are positive in country A; therefore, the level of money supply in the economy will increase. Here, i...

### Want to see the full answer?

See Solution

#### Want to see this answer and more?

Solutions are written by subject experts who are available 24/7. Questions are typically answered within 1 hour.*

See Solution
*Response times may vary by subject and question.
Tagged in