Chapter13: Monetary Policy
Section: Chapter Questions
Problem 8E
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Transcribed Image Text:Use the information for the banking system below to respond to the next three items.
16.
17.
18.
C.
d.
a.
b.
a.
b.
C.
d.
a.
b.
Assets
C.
d.
Bank Reserves
Loans
Securities (Bonds)
The banking system is currently fully loaned up (in equilibrium) if the reserve ratio is:
25%.
20%.
10%.
5%.
Using the reserve ratio found in the previous question, if the Fed buys $5 billion worth of
government bonds from banks, assuming no leakages into cash, bank reserves will equal
equal
billion, and excess reserves will equal
billion.
$20 billion
$70 billion
$10 billion
Liabilities
$5; $4
$25; $5
$25; $10
$24; $4
Deposits $100 billion
After a $5 billion purchase of securities (government bonds) from banks by the Fed, if all
banks make loans until excess reserves equal zero and there are no cash leakages,
checkable deposits can expand as a result of new lending by a maximum of (using the
reserve ratio found above)
billion.
$5
$10
$20
$25
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