MACROECONOMICS (LL)
21st Edition
ISBN: 9781260186949
Author: McConnell
Publisher: MCG
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Chapter 15, Problem 1RQ
To determine
Calculation of fraction of the paper money.
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48
LO3
Bank A has $5,000 in reserves, all required to be held. The required reserve ratio is 10 percent. Bank A has checkable deposits of O $500. O $5,000. O $50,000. O $500,000.
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- 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?arrow_forward1. Let's pretend that our current system of money was strictly Base Ten, so that the only currency that we used were pennies, dimes, one dollar bills, ten dollar bills, hundred dollar bills, thousand dollar bills and so on. Instead of drawing pictures of the money, these abbreviations for each kind of coin or bill will be used: penny (A), dime (B), one dollar bill (C), ten dollar bill (D), hundred dollar bill (E), thousand dollar bill (F), and so on. Since you are entering the teaching profession, you probably won't need to handle anything higher than a thousand dollar bill, but who knows what the future holds? Write down the exchange that could be made for each of the following:a. AAAAAAAAAA = b. CCCCCCCCCC = c. EEEEEEEEEE = d. AAAAAAAAAA = e. CCCCCCCCCC = f. DDDDDDDDDD = a. AAABBCDD + AABBBBBBBBCC = b. ACCCCCCCEE + AAAABBCCCCCCCC = c. AAAAAAAAAEEE + AAAAAAAAEEEEEEE = 2. Let's pretend that our current system of money was strictly Base Ten, so that the only currency that we…arrow_forward13. 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?arrow_forward
- 4. Does the I in C+I+ G Nx include purchases of stocks and bonds? Why or why not? Lo2 t nnmnonent of I inarrow_forwardConsider 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 checkarrow_forwardSuppose that the bank holds $15m of treasury bonds, $10m of reserves, $30m of checkable deposits, $20m of time deposits and has $6m of capital. How much loan does the bank have if we know it doesn't have any other assets or liabilities not listed here? Suppose that checkable deposits and reservers pay 0 interest The interest rate on treasuries is 3% Loans pay 7% and time deposits pay 5% How much profits does the bank make? What is the bank's return on assets?arrow_forward
- 7 Suppose that liabilities of the Central Bank are 90% reserves and 10% currency, and currency is not held by banks. Further, a 30% reserve/deposit limit for banks exists, and households hold 10% of their assets in currency, and the rest in deposits. A $1 increase in central bank liabilities at the stated 90/10 ratio leads to what $ increase in M2? [please answer the question NOT in %, but in absolute numbers]arrow_forwardSince the Fed has begun paying interest on bank reserves at the Fed, do barks still want to avoid holding excess reserves? Context: If lending was more profitable than the currently very low interest rate (formerly zero) that could be received from the Fed on excess reserves, we would still normally expect barks to lend out excess reserves rather than maintain them as excess reserves Judging from the fact that there has been a huge increase in holdings of excess reserves in the barking system, however, there may well be other constraints (such as Basel III) that may be limiting bank's willingness to lend out excess reserves.arrow_forwardSuppose that the bank holds $15m of treasury bonds, $10m of reserves, $30m of checkable deposits, $20 of time deposits and has $6m of capital. How much loan does the bank have if we know it doesn't have any other assets or liabilities Suppose in the same bank checkable deposits and reserves pay 0 interest. The interest rate on treasuries is 3%, loans pay 7% and time deposits pay 5%. How much profit does the bank make? What is the banks return on assets?arrow_forward
- Suppose that Continental Bank has the simplified balance sheet shown below and that the reserve ratio is 20 percent:a. What is the maximum amount of new loans that this bank can make? Show in column 1 how the bank’s balance sheet will appear after the bank has lent this additional amount. b. By how much has the supply of money changed? Explain. c. How will the bank’s balance sheet appear after checks drawn for the entire amount of the new loans have been cleared against the bank? Show the new balance sheet in column 2. d. Answer questions a, b, and c on the assumption that the reserve ratio is 15 percent.arrow_forwardSuppose that a bank holds $15m in treasury bonds $10m in reserves $30m of checkable deposits $20m of time deposits $6m of capital How much loan does the bank have if we know it doesn't have any other assets or liabilities Suppose that checkable deposits and reserves pay 0 interest The interest rate on treasuries is 3% The loan pays 7% Time deposits pay 5% How much profit does the bank make? What is the bank's return on assets? 3.2% 2.9% 3.7% 2.6%arrow_forwardThe table below reports the breakdown of assets and liabilities for all commercial banks for January 2020, two months before the start of the COVID-19 recession, and December 2020. Assets (in billions of dollars) Liabilities (in billions of dollars) Jan-20 Dec-20 Jan-20 Dec-20 Loans $10,041.54 $10,376.47 Deposits $13,293.30 $16,061.82 Reserves $1,768.52 $3,168.94 Borrowings $1,965.90 $1,715.81 Treasury Securities $3,008.19 $3,726.10 Other Liabilities $593.42 $825.74 Other Assets $2,984.52 $3,224.45 Total Assets $17,802.77 $20,495.96 Total Liabilties $17,802.77 $20,495.96 From January to December, the net worth of banks changed by $___ billion (round your answer to two decimal places).arrow_forward
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