Reserve requirements effectively impose a tax on bank deposits that reduce profits. Why does this tax increase with the interest rate? A. States tend to increase franchise fees on banks as interest rates rise B. Reserve requirements increase as interest rates rise C. Banks earn more money as interest rates increase, so their federal income taxes increase. D. Banks could earn more money if they could lend the funds required to be held as reserves.

Reserve requirements effectively impose a tax on bank deposits that reduce profits. Why does this tax increase with the interest rate? A. States tend to increase franchise fees on banks as interest rates rise B. Reserve requirements increase as interest rates rise C. Banks earn more money as interest rates increase, so their federal income taxes increase. D. Banks could earn more money if they could lend the funds required to be held as reserves.

Business/Professional Ethics Directors/Executives/Acct

8th Edition

ISBN:9781337485913

Author:BROOKS

Publisher:BROOKS

Chapter2: Ethics & Governance Scandals

Section: Chapter Questions

Problem 6.2EC

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Reserve requirements effectively impose a tax on bank deposits that reduce profits. Why does this tax increase as interest rates rise? A. As interest rates rise, banks could earn more money by lending reserves to borrowers. These profits are limited by the reserve requirement, and the foregone profits increase as the interest rate rises. B. States tend to increase franchise fees on banks as interest rates rise C. The Fed always increases the reserve requirement as interest rates rise D. Banks earn more money as interest rates increase, so their state and federal income taxes increase.
Which of the following would increase a bank’s Net Interest Margin, assuming all else stays the same? Choose Two an increase in the interest rate on its loans companies paying off some of their loans and the bank using the funds to purchase Treasury bonds customers switching a portion of their time deposits to demand deposits the bank issues additional equity and keeps the funds in cash an increase in the federal funds rate assuming the bank borrows more in the federal funds market than it lends
If the Fed buys loans from banks, what is the impact on the Loanable Funds Market? A) Decreases the supply of loanable funds and lowers the interest rate. B) Increases the supply of loanable funds and lowers the interest rate. C) Decreases the supply of loanable funds and raises the interest rate. D) Increases the supply of loanable funds and raises the interest rate.
Based on the functions of the banking system, give reasons why governments bail out banks during an economic crisis?
If the bank decides to cut down on interest expenses by reducing its dependence upon borrowed funds, what policy must the bank follow?
All else being equal, if a central bank sells government bonds from the market it would: a. decrease the money supply. b. decrease interest rates. c. mean the supply of loanable funds would move to the right. d. most likely decrease savings in the economy.
When any central bank wanted to increase the money supply and loosen credit conditions, what would it do in the private market for government bonds? Explain how this is supposed to affect the economy.
All else being equal, if a central bank buys government bonds from the market it would: a. mean savings in the economy are likely to increase. b. mean the supply of loanable funds would move to the left. c. increase the money supply. d. increase interest rates.
Suppose you are the governor of the Bank of Canada, and the economy is experiencing a recession, what changes in (a) open market operation and (b) overnight loan rate and bank rate would you consider? Explain in each case how the change you advocate would affect chartered bank cash reserves and influence the money supply.
Which of the following will have the same effect on money supply as raising the reserve requirement? a) The central bank decreases the interest rate. b) The central bank purchases bonds in the market. c) The central bank purchases securities and debentures in the market. d) Lower bond prices.
Give reasons why governments bail out banks during an economic crisis
If the U.S. Treasury deposits income tax receipts into its account at the Federal Reserve, then a. the money multiplier will decrease b. the money multiplier will increase c. the monetary base will decrease d. the monetary base will increase Expected inflation can be estimated as a. the return on a TIPS bond b. the return on a Treasury bond c. the return on a TIPS bond minus the return on a Treasury bond d. the return on a Treasury bond minus the return on a TIPS bond A decrease in the expected return on stocks will a. shift the demand curve for bonds leftwards b. shift the demand curve for bonds rightwards c. shift the supply curve for bonds leftwards d. shift the supply curve for bonds rightwards Which of the following is part of M2? a. Small time deposits b. Money market mutual funds c. Currency held by foreigners d. All of the above

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	A.	States tend to increase franchise fees on banks as interest rates rise
	B.	Reserve requirements increase as interest rates rise
	C.	Banks earn more money as interest rates increase, so their federal income taxes increase.
	D.	Banks could earn more money if they could lend the funds required to be held as reserves.