MACROECONOMICS (LL)
21st Edition
ISBN: 9781260186949
Author: McConnell
Publisher: MCG
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Chapter 15, Problem 6DQ
To determine
Cash flow in a commercial bank.
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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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- 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).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_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
- Suppose 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_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_forward25) The graph above shows the market for a one-year discount bond with a face value of $1,000. The government's budget deficit increases by $150 million and to finance that deficit it borrows in this market. This will result in the private-sector borrowing to be crowded out by X dollars. What is the value of X? O. 50 O. 100 O. 150 O. 200 26). The graph above shows the market for a one year discount bond with a face value of $1,000. The government's budget deficit increases by $150 million and to finance that deficit it borrows in this market. This results in the private-sector borrowing to be crowded out. At the end, the private sector will end up borrowing X dollars. What is the value of X? O. 50 O. 100 O. 150 O. 200 O. 250arrow_forward
- Suppose 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_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_forwardi need Question no 4 Solution Just 1) Suppose the central bank decides to lend $2million to a particular bank (Kangaroo Bank) on the condition that Kangaroo Bank must make an additional $2million loan to one of its customers. Show the effect this has on the balance sheets of the central bank and Kangaroo Bank. If the customer uses those funds to buy a house from a person who banks with Koala Bank, show the effects this will have on the balance sheets of Kangaroo and Koala Bank. Suppose that, as a result of increased use of electronic payments, banks no longer need to hold as much vault cash. Banks decide to reduce their vault cash holdings by $250million. Show the effects this would have on the balance sheets of commercial banks and the central bank. If, at the same time, depositors decide to reduce their cash holdings by $50million by depositing that amount with their banks, show the combined effect of these decisions on the balance sheets of commercial banks. Suppose that…arrow_forward
- a. Explain how institutional factors promote economic growth in these areas promotion of modern technology the flow of resources to the most productive areas. 2.Explain how expansionary fiscal policy works in an economy Suppose that the banking system in Ghana has a required reserve ratio of 10 percent while the banking system in the Ivory Coast has a required reserve ratio of 20 percent. In which country would $100 of initial excess reserves be able to cause a larger total amount of money creation? For the two countries, if an amount of $2000 each are deposited at two separate ban banks in both countries and decides to give $600 as loans, what is the maximum amount of money that can be created in both countries with that deposit 3. With the aid of illustration (s) explain in detail why countries push forspecialization in international trade.arrow_forward4. Does the I in C+I+ G Nx include purchases of stocks and bonds? Why or why not? Lo2 t nnmnonent of I inarrow_forward10. Which of the following would cause a financial account (FA) surplus?a. the sale of heavy trucks used in construction by a domestic seller to a foreign buyer b. the purchase of stock in a U.S. corporation by a U.S. buyer c. the purchase of stock in a U.S. corporation by a foreign buyer d. the sale of stock in a U.S. corporation held by a foreign owner to a domestic buyerarrow_forward
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