Answered: What will happen when the Bank Rate…

What will happen when the Bank Rate will be reduced? Cost of borrowing decreases. Credit contraction. Cost of borrowing increases. Denon 36 Interest rate rises

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 2SCQ: Given the danger of bank runs, why do banks not keep the majority of deposits on hand to meet the...

See similar textbooks

Related questions

Q: bank has assets of $5 billion and liabilities of $4.8 billion

A: Banks balance sheet is balanced when it's assets equals it's liabilities. Banks assets are - Gold…

Q: Use the following information to answer questions 7 through 8: Consider the following balance sheet…

A: In this case we see that the bank has total amount of deposits of $3000. Out of this, it creates…

Q: Interest rate are influenced by various factors reflecting da demands for the funds and the supply…

A: Interest rates are influenced by many factors like investment, savings, liquidity preference,…

Q: can you find out major differences between large banks and small banks. Which have had higher ROAs?…

A: Following below are the major Differences between large bank and small banks: A. All those banks are…

Q: Which of the following is true about banks? Select one: a. Banks are financial institutions through…

A: Bank: It is an institution that allows people to deposit money into an account

Q: TFQ Consider TOBITC's Balance Sheet $2,500 Reserves $30,000 Deposits $2,500 Bonds $40,000 Loans…

A: When the banks wanted to meet its reserve requirement, the bank can borrow funds in the interbank…

Q: Which of the following is NOT a bank liability? checkable deposits CDs mortgage loans borrowings…

A: Hi! thanks for the question but as per the guidelines, we can answer only one question at one time.…

Q: Analyze hyperinflation and stagflation. How do these relate to money, banking, and financial…

A: An economy is said to suffer from stagflation when the inflation in an economy is very high and the…

Q: The legal reserve ratio is 0.2 Find the credit multiplier

A: The data presented in the question above is:- Legal reserve ratio = 0.2 Credit Multiplier is to be…

Q: What is the definition of commercial bank ?

A: Commercial Bank is that institution of finance which are of three types: Public Banks- like State…

Q: identify therelationship between money credit and financial institution

A: The financial institutions aim at increasing the monetary base of the economy but creating credit.

Q: What is the risk if a bank does not diversify its loans?

A: The banks are the biggest financial institutions that operate in the country and indulge in…

Q: If in an economy bank rate is increased how will it affect the demand for credit? Explain

A: To prevent volatility, the basic goal of monetary policy is to maintain control over the money…

Q: Describe bank runs. Why did they happen and what happened as a result?

A: In the banking sector, different terms are used to depict specific conditions of the banks.

Q: Use a diagram to describe the structure of a bank bill.

A: Bank, an institution that deals in cash and its substitutes and provides alternative services…

Q: make many small loans. d. Through the checking accounts they facilitate, banks

A: A bank is a financial institution being licensed in order to receive deposits and also make loans.…

Q: what is a real life example of a commercial bank

A: Commercial banks are the financial institutions which provide people with facility of loans and…

Q: Topic: Federal Reserve and the Central Bank Question: What is a bank run and why might a bank run…

A: Bank runs happen due to an outsized amount of individuals. They begin creating withdrawals from…

Q: What is the main difference between banks and other financial institution, how is it works?

A: Financial intermediaries helps in channelizing the funds from savers to borrowers. It acts as the…

Q: Discuss how the national credit act deals with information held by the credit bureaux

A: The National Credit Act, 2005 is aimed to provide betterment of credit market in terms of fairness,…

Q: Identify whether it is true or false BANK RATE IS A QUALITATIVE METHOD OF THE CREDIT CONTROL IN THE…

A: According to the given question Option is FALSE Reason BANK RATE IS NOT AN QUALITATIVE METHOD OF THE…

Q: Supposed that the First National Bank has $300 million worth of rate sensitive assets and $700…

A: Given that, Rate sensitive asset = $300 million Rate sensitive liabilities = $700 million The…

Q: Explain the function of Central Bank of Oman

A: Central bank is the apex body which regulate, control, operate and direct the entire banking system…

Q: Question 5, When banks have a lot of money, interest rate will be low to attract borrowers. High to…

A: Note: We’ll answer the first question since the exact one wasn’t specified. Please submit a new…

Q: What term is used to describe the interest rate charged by the central bank when it makes loans to…

A: Answer to the question is as follows :

Q: Consider a bank that has made a large number of loans at a fixed interest rate of 4% and pays 3%…

A: Interest rate on loans = 5% Interest rate on deposits = 4% Net margin = 1%

Q: If a borrower defaults on a home loan, the bank is likely to do all of the following except -- sell…

A: In finance, default is failure to meet the legal obligations of a loan

Q: What is the agency problem appear between 1. the banks and the customers 2. the banks and the…

A: Economics as a subject deals with the allocation of scarce resources among humans with unlimited…

Q: Give True or False: Credit rationing is quantitative credit control measure of Central bank.

A: In the process of credit rationing the lenders are not willing to advance the additional funds to…

Q: The possibility that the failure of one bank affects the performance of other banks is called:…

A: When there will be a shortage of liquidity within commercial banks, then bank failure may occur. The…

Q: Identify who is responsible for the failure at Barings Bank? Explain

A: Insolvent banks tend to fail. The bank fails when the liabilities rise but bank is not able to meet…

Q: Would the maximum amount of new bank loans that a commercial bank can make be different when…

A: A commercial bank refers to a financial institution that accepts deposits, offers to check accounts…

Q: discuss three ways in which banks are to make profit

A: ‘Commercial Banks’ are the financial institutes that mainly accepts deposits, gives loan and other…

Q: Why did the Bank of England in 2021 set bank rates to be maintained at 0.1%?

A: Fiscal and monetary policy are important for economy. In Democratic government, it has been seen…

Q: How many banks failures occurred in the United States during 2017

A: (1.) How many banks failures occurred in the United States during 2017? Definition- What is a bank…

Q: What are the effective strategies to make the rural bank capable to pay-off a short and long term…

A: Rural bank: Rural banks are rural-based unit banking organizations that mobilize financial…

Q: What types of regulations commercial banks are subject to and why commercial banks are subject to…

A: It is very important to have a strong and well developed banking sector in order to maintain…

Q: Numeric question Joey Espinoza has $1,000 in cash, he deposits the total amount in LegionBanc.…

A: Answer: Given, Initial cash deposit by Joey Espinoza = $1,000 Reserve requirement = 10%…

Q: Which of the following activities will affect a bank’s required reserves? why? a. The local Girl…

A: Required reserve: It is the minimum amount of cash that banks keep on hand.

Q: Explain the impact of interest rate change in a bank income and net worth

A: The bank is the financial intermediary of the public funds. The bank takes the deposits of the…

Q: Explain the role of capital in protecting a bank from insolvency.

A: Bank capital reduces risk by 1) absorbing losses in an accounting framework so that banks can remain…

Q: xamine the causes of the recent bank failures in Ghana. How did the Bank of Ghana deal with the…

A: The banking sector of Ghana has witnessed severe bank crises which have led to bank failure between…

Q: What is the maximum amount of new loans that this bank can make?

A: A bank can give loans to the public only after keeping some reserves out out total demand deposits.…

Q: Would the maximum amount of new bank loans that a commercial bank can make be different when…

A: The discount window can be used to take loans from the federal reserve which can directly be…

Q: Which of the following is a key feature explaining the phenomenon of a bank run? It is impossible…

A: A bank run is described as a situation where almost all the customers of the bank or other financial…

Concept explainers

Comparative Advantage and Absolute Advantage Analysis

The theory of absolute advantage was given by Adam Smith in the year 1776.

Question

Urgent

Flag
What will happen when the Bank Rate will be reduced?
Cost of borrowing decreases.
Credit contraction.
Cost of borrowing increases.
Interest rate rises.
Queton 36

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

SEE SOLUTION Check out a sample Q&A here

Step 1 - answer

VIEW

Step 2 - explained

VIEW

Step by step

Solved in 2 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.

Similar questions

How is a central bank different from a typical commercial bank?
Explain how to use the discount rate to expand the money supply.
Bank runs are often described as self-fulfilling prophecies. Why is this phrase appropriate to bank runs?
What does a balance sheet show?
What is a bank run?
Given the danger of bank runs, why do banks not keep the majority of deposits on hand to meet the demands of depositors?
In government programs of bank supervision, what is being supervised?
Assuming an economy have only two commercial banks in it banking system, Classic Bank and Prudent Bank. The following shows the balance sheet of the two banks as at 2019.Classic BankBalance sheet as at December, 2019GHSm GHSmAssets: Liabilities & Equity:Reserves 1,000 Deposits 3,000Securities 2,000 Equity 7,000Loans & Advances 1,000Property, Plant and Equipment 6,000 .10,000 10,000 Prudent BankBalance sheet as at December, 2019GHSm GHSmAssets: Liabilities & Equity:Reserves 600 Deposits 2,500Securities 1,500 Equity 4,400Loans & Advances 800Property, Plant and Equipment 4,000 .6,900 6,900Assume a required reserve ratio of 10%.(a) What is the amount of excess reserves in this commercial banking system? (b)What is the maximum amount that the money supply can be expanded? What would be the effect of a fall in reserve ratio to 5%, on the maximum amount that the money supply can be expanded? (c) Determine the stock of broad money supply assuming the non-bank public holds…
Supposed that the First National Bank has $300 million worth of rate sensitive assets and $700 million of rate sensitive liabilities, then what will happen to the bank's profits or loss if the market interest rate unexpected increases by 3 percentage point. Show your calculation and explain.
13. When the government uses its overdraft facilities at the central bank, it ___________ the quantity of moneyin the economy. This is called ___________________ financing. A Increases; deflationaryB Decreases; inflationaryC Decreases; deflationaryD Increases; inflationary
5. Helga sells a bond to the Fed for $1000. She deposits $900 in her bank and keeps the rest as cash. Show the impact on her bank’s balance sheet after the bank achieves equilibrium. The rrr = 10%. 6. Calculate the change in the money supply as a result of Helga’s actions. 7. How can a bank be illiquid but not insolvent? 8. The money supply is $100,000, which consists entirely of bank deposits, and required reserves are $1000. How much is deposited in banks? 9. Why don’t banks like to hold excess reserves?
If a bank has assets of $5 billion and liabilities of $4.8 billion its equity equals $.2 billion. its equity equals –$.8 million and it faces a solvency crisis. its equity equals –$.8 billion. it faces a solvency crisis.