MACROECONOMICS (LL)
21st Edition
ISBN: 9781260186949
Author: McConnell
Publisher: MCG
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Question
Chapter 15, Problem 4RQ
To determine
A loanable amount.
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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. $0
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.
The 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).
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- 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_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_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_forward
- Since 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_forward4. 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?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
- 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_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
- 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_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_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_forward
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