Answered: Why did bank failures increase, with a…

Why did bank failures increase, with a lag, after deposit insurance became available to banks? What else contributed to the increase in bank failures in the 1980's?

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 11RQ: List the three traditional tools that a central bank has for controlling the money supply.

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Why did bank failures increase, with a
lag, after deposit insurance became
available to banks? What else contributed
to the increase in bank failures in the
1980's?

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List the three traditional tools that a central bank has for controlling the money supply.
Suppose the Fed buys $1 million of bonds from theFirst National Bank. If the First National Bank and allother banks use the resulting increase in reserves topurchase securities only and not to make loans, whatwill happen to checkable deposits?
Explain what would happen if banks were notified they had to increase their required reserves by one percentagepointfrom,say,9%to10%ofdeposits.What would their options be to come up with the cash?
(C) what would the lending capacity of the banking system be after this product? (D) How large would the money supply be if the banks fully utilized their lending capacity? (E) What three policy tools could the Fed use to offset that potential growth in M1?
. 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?
a. Distinguish between legally required reserves and excess reserves. b. Why don’t banks hold a 100 percent reserves? How is the amount of reserves bank hold related to the amount of money the banking system creates? c. Define the term money multiplier? d. Assume that Lucky Bank is required to hold a 10% deposits as reserves, and there is a $3000 increase in demand deposits. Calculate the money multiplier? How much additional new demand deposits couldthe $3,000 deposit support?
D) what kind of monetary policy might be helpful to stabilize the economy ( expansionary or contractionary)? E) what specific monetary policy tools does the federal reserve have available to use in this scenario? F) explain in detal, how should the federal reserve use each ofthese tools to maximize their effect in stabilizing the economy, what will be the likely effect of each monetary tool's use on the money supply , and the resulting impact on the economy
. Assume that the banking system has total reservesof $100 billion. Assume also that required reservesare 10 percent of checking deposits and that bankshold no excess reserves and households hold nocurrency.a. What is the money multiplier? What is the moneysupply?b. If the Fed now raises required reserves to20 percent of deposits, what are the change inreserves and the change in the money supply
if people hold all money as demand deposits and banks maintain a reserve raitio of 12.5 percent what's the quantity of money
Please no written by hand solution tle shifts the Central Bank rule to the right. O a. An increase in the Z factors O b. A decrease in the price level O c. An increase in government spending O d. A decrease in government spending
c. Define the term money multiplier? d. Assume that Lucky Bank is required to hold a 10% deposits as reserves, and there is a $3000 increase in demand deposits. Calculate the money multiplier? How much additional new demand deposits couldthe $3,000 deposit support?
§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?