Fed Funds Rate7.0%6.5%6.0%5.5%5.0%4.5%4.0%3.5%3.0%2.5%2.0%1.5%1.0%0.5%0.0%0$$50$100$150$200$250$300$350$400$450$500$550$600$650$700$750$800Federal Funds ($Billions)Consider the above graph that shows demand for excessreserves by the bankingsystem as a whole. Currently banks as a whole are holding an excess reserve of $350billion.The graph indicates that the Fed is payingpercent interest onbank excess reserves and that the equilibrium fed funds rate ispercent.If the Fed reduces the interest on bank reserves to one percent, the equilibrium fedfunds rate will equalpercent.

Excess reserves refer to the excess funds that banks hold above and further, the required reserves…

tem as a whole. Currently banks as a whole are holding an excess reserve of $350 on. graph indicates that the Fed is paying k excess reserves and that the equilibrium fed funds rate is cent. percent interest on e Fed reduces the interest on bank reserves to one percent the equilibrium fed

tem as a whole. Currently banks as a whole are holding an excess reserve of $350 on. graph indicates that the Fed is paying k excess reserves and that the equilibrium fed funds rate is cent. percent interest on e Fed reduces the interest on bank reserves to one percent the equilibrium fed

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter28: Monetary Policy And Bank Regulation

Section: Chapter Questions

Problem 38P: Suppose the Fed conducts an open market purchase by buying 10 million in Treasury bonds from Acme...

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Question

Fed Funds Rate
7.0%
6.5%
6.0%
5.5%
5.0%
4.5%
4.0%
3.5%
3.0%
2.5%
2.0%
1.5%
1.0%
0.5%
0.0%
0$
$50
$100
$150
$200
$250
$300
$350
$400
$450
$500
$550
$600
$650
$700
$750
$800
Federal Funds ($Billions)
Consider the above graph that shows demand for excess
reserves by the banking
system as a whole. Currently banks as a whole are holding an excess reserve of $350
billion.
The graph indicates that the Fed is paying
percent interest on
bank excess reserves and that the equilibrium fed funds rate is
percent.
If the Fed reduces the interest on bank reserves to one percent, the equilibrium fed
funds rate will equal
percent.

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31) The FDIC must take steps to close down banks whose equity capital is less than ________ of assets. A) 4% B) 3% C) 2% D) 1% 32) Off-balance-sheet activities A) generate fee income with no increase in risk. B) increase bank risk but do not increase income. C) generate fee income but increase a bank's risk. D) generate fee income and reduce risk. 33) The Basel Accord, an international agreement, requires banks to hold capital based on A) risk-weighted assets. B) the total value of assets. C) liabilities. D) deposits. 34) The Basel Accord requires banks to hold as capital an amount that is at least ________ of their risk-weighted assets. A) 10% B) 8% C) 5% D) 3% 35) Under the Basel Accord, assets and off-balance sheet activities were sorted according to ________ categories with each category assigned a different weight to reflect the amount of ________. A) 2; adverse selection B) 2; credit risk C) 4; adverse selection D)…
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