T-ACCOUNT FIRST BANK OF CALIFORNIA Assets Liabilities Reserves $ 500 Deposits $50,000 Government bonds/securities $1,000 Loans $ 48,500 TOTAL $50,000 TOTAL $50,000 A) Refer to the table above. If this bank is only holding the minimum amount of reserves to meet the regulations, calculate the reserve requirement ratio for this bank (in %). b) Suppose the Central Bank in this economy conducted an Open Market Sale of $500. What will happen to the First Bank of California's reserves: increase or decrease; and by how much? What would happen to the government bonds owned by this bank: will it increase or decrease, and by how much? c) In practice, an open market purchase operation is not completely controlled by the central bank of any economy. What are the two factors that limit the Central Bank's ability to control total money supply in the economy?
T-ACCOUNT FIRST BANK OF CALIFORNIA Assets Liabilities Reserves $ 500 Deposits $50,000 Government bonds/securities $1,000 Loans $ 48,500 TOTAL $50,000 TOTAL $50,000 A) Refer to the table above. If this bank is only holding the minimum amount of reserves to meet the regulations, calculate the reserve requirement ratio for this bank (in %). b) Suppose the Central Bank in this economy conducted an Open Market Sale of $500. What will happen to the First Bank of California's reserves: increase or decrease; and by how much? What would happen to the government bonds owned by this bank: will it increase or decrease, and by how much? c) In practice, an open market purchase operation is not completely controlled by the central bank of any economy. What are the two factors that limit the Central Bank's ability to control total money supply in the economy?
Chapter13: Monetary Policy
Section: Chapter Questions
Problem 8E
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H3.
Transcribed Image Text:T-ACCOUNT FIRST BANK OF CALIFORNIA
Assets
Liabilities
Reserves
$ 500
Deposits
$50,000
Government bonds/securities
$1,000
Loans
$ 48,500
TOTAL
$50,000
TOTAL
$50,000
A) Refer to the table above. If this bank is only holding the minimum amount of reserves to meet the regulations, calculate the reserve requirement ratio for this bank (in %).
b) Suppose the Central Bank in this economy conducted an Open Market Sale of $500. What will happen to the First Bank of California's reserves: increase or decrease; and by how much? What would happen to the government bonds owned by this bank:
will it increase or decrease, and by how much?
c) In practice, an open market purchase operation is not completely controlled by the central bank of any economy. What are the two factors that limit the Central Bank's ability to control total money supply in the economy?
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