MACROECONOMICS (LL)
21st Edition
ISBN: 9781260186949
Author: McConnell
Publisher: MCG
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Question
Chapter 15, Problem 3P
To determine
Excess reserves .
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4. a) Suppose that Tk.10,000 in new taka bills (never seen before) falls magically from the sky into your hands. What are the minimum increase and the maximum increase in the money supply that may result? Assume the required reserve ratio is 10 percent.b) Suppose you receive Tk. 10,000 from your grandmother and deposits the money in a saving account. your grandmother gave you the money by writing a check on her saving account. Would the maximum increase in the money supply still be what you found it to be in part a) where you received the money from the sky? Why or why not?c) Suppose that instead you getting Tk. 10,000 from the sky or a check through your grandmother, you get the money from your mother who had buried it in a can in her backyard. In this case, would the maximum increase in the money supply be what you found it to be in part a)? Why or why not?
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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]
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?
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- Since 2009, how much has been borrowed through the federal funds market? O. $787 million O. $43 billion O. $1,148 billion Incorrect O. $0arrow_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_forwardSuppose 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_forward
- Assume that the following data describe the current condition of the commercial banking system: Value Total reserves: $ 100 billion Transactions deposits: $ 800 billion Cash held by public: $ 300 billion Required reserve ratio: 0.10 Instructions: Enter your responses as a whole number. In part b, round your response to one decimal place. How large is the money supply (M1)? $ _____ billion How large are excess reserves? $ _____ billion Now assume that the public transfers $50 billion in cash into transactions accounts. 3. How much would the total lending capacity of the banking system be after this portfolio switch? $ ____ billion How large would the money supply be if the banks fully utilized their lending capacity? $ ____ billionarrow_forward10 Look up data on FRED on what happened to the money supply and excess reserves in the 2007-2009 Great Recession and the 2020 Covid-19 contraction. By how much did M1 Money Stock and Excess Reserves increase in absolute dollars and in percentage terms from December 2007 to April 2014? How much did M1 Money Stock and Excess Reserves increase in absolute dollars and in percentage terms from February 2020 to May 2021?arrow_forward2. Suppose that in 2018 customers deposit $4,000 into their bank accounts. Based on the extended money multiplier calculated in part (1), calculate the total amount which the money supply in the banking system will eventually increase to. Show all steps involved in the calculation. part 1 answer DRR = Ratio (4% or 0.04) CDR = % of money in wallets (3% or 0.03) = (1 + 0.03) / (0.04 + 0.03) = 1.03 / 0.07 Answer = 14.71 Therefor Every $1 in the bank will allow the bank to create $14.71arrow_forward
- The Fed purchases $1 million of U.S. government securities from First Bank. The required reserve ratio is 10 percent, the currency-deposit ratio is 5 percent, and banks loan all excess reserves. The total increase in monetary base is _____ and the total increase in money supply (M1) is _____. O. $1 million; $3 millionO. $3 million; $1 milionO. $1million; $7 millionO. $7 million: $1 millionarrow_forward1. Compute the additional loan the commercial bank can extend on a deposit of P250, 000 when it is required to keep a 20% reserve. Discount rate is at 17%, and rediscount rate at 21% 2. How does a delay in spending due to the uncertain political climate affect velocity and income? 3. Give one policy that can complement the reserve requirement in expanding credit in the banking industry considering the peculiarities of rural and savings bank. 4. What is the maximum amount of checks that can be circulated from a demand deposit of P300M assuming a reserve requirement f 15%? a. How much money can the bank create the deposit? b. What would be the amount of checks if reserved requirements were raised to 25%?arrow_forwardQuestion 1) Explain what will happen to M1 and M2 measures of money supply if an individual moves money from demand deposit account to a small-denomination time deposit. Question 2) Issuing marketable securities is the primary way businesses finance their operations. Trueor false? Explain your answer. If a four-year bond with a $2000 face value has a coupon rate of 2.5%, and the currentmarket interest rate is 4%, what is the market price of the bond? If this bond sold for $1900, is theyield to maturity greater or less than 4%? Why?arrow_forward
- Suppose that National bank has $36 million in checkable deposits, Commonwealth bank has $45 million in checkable deposits and the required reserve ratio for checkable deposits is 10%. If the National bank has $4 million in reserves and Commonwealth has $5 million iin reserves, how much excess reserves does each bank have? Suppose that a customer of the National bank writies a check for $2 million to a real estate broker who deposits the check at Commonwealth bank. After the check clears, how much excess reserves does each bank have?arrow_forward§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?arrow_forwardAssume 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_forward
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