Which of the following central-bank actions would be less effective in raising the money supply when the general public is reluctant to lend and borrow? (i) Lowering the reserve requirement (ii) Decreasing the repurchase rate (iii) Decreasing the reverse repurchase rate a. (i), (ii), and (iii) are all correct. O b. O C. O d. Only (i) is correct. Only (iii) is correct. Only (ii) is correct.

Which of the following central-bank actions would be less effective in raising the money supply when the general public is reluctant to lend and borrow? (i) Lowering the reserve requirement (ii) Decreasing the repurchase rate (iii) Decreasing the reverse repurchase rate a. (i), (ii), and (iii) are all correct. O b. O C. O d. Only (i) is correct. Only (iii) is correct. Only (ii) is correct.

Exploring Economics

8th Edition

ISBN:9781544336329

Author:Robert L. Sexton

Publisher:Robert L. Sexton

Chapter25: Money, Banking, And The Federal Reserve System

Section: Chapter Questions

Problem 13P

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Consider a situation where the central bank increases the money supply. equal, if nominal GDP increased by $800 billion during a time when veloc did the central bank increase the money supply? O $400 million O $200 million O $200 billion O $400 billion No new data to save. Last check
. Suppose that the T-account for Nan Bank Inc. is as follows:Assets LiabilitiesReserves $100,000Loans $400,000 Deposits $500,000. If the Bank of Canada requires banks to hold 5 percent of deposits reserves, how much in excess reserves does Nan Bank Inc. now hold?Assume that all other banks hold only the required amount of reserves. IfNan Bank Inc. decides to reduce its reserves to only the required amount, byhow much would the economy's money supply increase?
Assume that the balance sheet of a bank in your assigned country as below:Assets LiabilitiesReserves $5,000 Deposits $40,000Loans $45,000 Capital $10,000a. If the required reserve ratio is 3 percent, then how much does this bank has excessreserves?b. Suppose a bank purchases $1,500 of government securities using funds from reserves.How much do bank assets change as a result of this transaction? Show the change inthe balance sheet above. How much does Money Supply change due to this transaction?c. Calculate the bank’s leverage ratio. What is the maximum decrease (in %) in the marketvalue of assets before the bank becomes insolvent?
(A). For the Fed to reduce the money supply using open market operations it should ... O a. Increase the money supply. O b. Lower the minimum reserve requirement. O c. Buy treasury bills from banks. O d. Sell treasury bills to banks. (b). Which of the following is not a result of expansionary Open Market Operations? O a. Increase in the money supply. O b. Less investment spending. O c. Banks make more loans. O d. Decrease in the federal funds rate.
13. Suppose that the T-account for Nan Bank Inc. is as follows:Assets LiabilitiesReserves $100,000Loans $400,000 Deposits $500,000If the Bank of Canada requires banks to hold 5 percent of deposits asreserves, how much in excess reserves does Nan Bank Inc. now hold?Assume that all other banks hold only the required amount of reserves. IfNan Bank Inc. decides to reduce its reserves to only the required amount, byhow much would the economy's money supply increase?
The T-sheet below is for the Next to Last National Bank, a commercial bank. The required reserve ratio is 20% of deposits. (a) How much are excess reserves for this bank? (b) Suppose that this bank receives a deposit inflow of $20 million. Suppose also that you are certain that no deposit outflow will occur for several years and that the national economy will continue to grow. To maximize profits, what should you do? Show and explain the new T-sheet.
Suppose that the Bank of Canada engages in monetary tightening, raising its Overnight Rate Target from 0.25 to 4 percent, so as to ‘build back better.’ (a) Why would no commercial bank borrow at a rate above the Bank Rate on theovernight market? (b) Why would no commercial bank lend at a rate below 3.75 percent on the overnightmarket?
Activity in money markets increased significantly in the late 1970s and early 1980s because of O regulations that limited what banks could pay for deposits. O rising short-term interest rates. O both A and B of the above. O neither A nor B of the above.
Refer to table below. Suppose that the Fed had decided to set the U.S. money supply in December 1932 and in December 1933 at the same value as in December 1930. a. Assuming that the values of currency held by the public and the reserve-deposit ratio had remained as given in the table, what should the values of bank reserves be to reach the stated target for the U.S. money supply? Instruction: enter all responses rounded to two decimal places Money Supply Currency held by public Reserve-deposit ratio Actual Bank reserves Needed Bank reserves December 1930 $44.1 billion $3.85 billion 0.075 $3.31 billion $3.31 billion December 1932 $44.1 billion $4.82 billion 0.109 $3.18 billion billion December 1933 $44.1 billion $4.85 billion 0.133 $3.45 billion billion b. In order to accomplish this objective, the Fed would have had to conduct open market purchases to increase bank reserves by $ _______ billion in 1932 and $_________ billion in 1934.
a. Suppose a certain bank has $5M in capital, demand deposits totaling $40M, holds 15% reserves, and invests solely in high-risk loans. Sketch out this bank’s balance sheet.b. Now suppose that 10% of the loans completely default. What does this bank’s balance sheet look like? Hold demand deposits constant for this question.c. Finally, assume depositors, fearing insolvency, withdraw $15M from the bank. The bank can sell loans only at a 25% discount. Barring any inter-bank borrowing, does this bank remain solvent? Why or why not?
§Suppose that the T-account for First National Bank is as follows: Assets Liabilities Reserves: 90.000-TL Deposits: 500.000-TL Loans: 410.000-TL § §If the Central Bank requires banks to hold 10% of deposits as reserves, how much in excess reserves does First National Bank now hold? MM=1/rr MM=1/(10/100) MM=10 40000*10=400000TL §Assume that all other banks hold only the required amount of reserves. If First National decides to reduce its reserves to only the required amount, by how much would the economy’s money supply increases?
The following graph shows a hypothetical demand function for federal funds . Currently , the total amount of reserves in the banking system is $ 50 billion , the discount rate is 3.5 percent , and interest on reserves equals IOR = 1 percent . If the Fed reduces the discount rate to 3.00 percent , the equilibrium federal funds rate ( FFR ) will equal : O a . FFR 3.00% O b . FFR = 2.50% O c . FFR = 2.00% O d . FFR 1.50% O e . None of the above.