MACROECONOMICS FOR TODAY
10th Edition
ISBN: 9781337613057
Author: Tucker
Publisher: CENGAGE L
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Question
Chapter 15, Problem 6SQ
To determine
The size of deposit that could be used for loan creation.
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Suppose that in a given month $52 million is deposited into the banking system while $60 million is withdrawn. Also suppose that the Fed has set the reserve requirement at 8 percent and that banks have no excess reserves at the beginning of the month. What is the maximum amount of new checkable-deposit money that can be created (or removed) by the banking system as a result of these deposits and withdrawals?
Instructions: Enter your answer as a whole number. Enter a positive number to show an increase and a negative number (−) to show a decrease.
$ million
Suppose a bank has $15 million in savings deposits, $7 million in checking deposits, $27 million in total deposits, and $9 million in debts. The bank is also holding $12 million in reserves, $4 million in short term government bonds, $16 million in securities, $2 million in loans. What is the bank’s net worth? Is the bank healthy or not?
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%
Chapter 15 Solutions
MACROECONOMICS FOR TODAY
Ch. 15.3 - Prob. 1YTECh. 15 - Prob. 1SQPCh. 15 - Prob. 2SQPCh. 15 - Prob. 3SQPCh. 15 - Prob. 4SQPCh. 15 - Prob. 5SQPCh. 15 - Prob. 6SQPCh. 15 - Prob. 7SQPCh. 15 - Prob. 8SQPCh. 15 - Prob. 9SQP
Ch. 15 - Prob. 10SQPCh. 15 - Prob. 11SQPCh. 15 - Prob. 1SQCh. 15 - Prob. 2SQCh. 15 - Prob. 3SQCh. 15 - Prob. 4SQCh. 15 - Prob. 5SQCh. 15 - Prob. 6SQCh. 15 - Prob. 7SQCh. 15 - Prob. 8SQCh. 15 - Prob. 9SQCh. 15 - Prob. 10SQCh. 15 - Prob. 11SQCh. 15 - Prob. 12SQCh. 15 - Prob. 13SQCh. 15 - Prob. 14SQCh. 15 - Prob. 15SQCh. 15 - Prob. 16SQCh. 15 - Prob. 17SQCh. 15 - Prob. 18SQCh. 15 - Prob. 19SQCh. 15 - Prob. 20SQ
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- In a program of deposit insurance as it is operated in the United States, what is being insured and who pays the insurance premiums?arrow_forwardWorking through an open-market operation Assume that the following balance sheet portrays the state of the banking system. The banks currently have no excess reserves. Assets Liabilities and Net Worth (Billions of Dollars) Total reserves 4 Checkable deposits 20 Loans 11 Securities 5 Total 20 Total 20 What is the required reserve ratio? a. 5% b.10% c.20% d. 25% Suppose that the Federal Reserve (the “Fed”) sells $1.5 million of bonds to a bond dealer, who pays the Fed by writing a check against the funds in her checking account. What is the initial impact of this transaction? (a) The banking system's holdings of securities rise by $1.5 million, and the banking system's total reserves fall by $1.5 million. (b)Checkable deposits fall by $1.5 million, and the banking system's holdings of securities fall by $1.5 million. (c) Checkable deposits fall by $1.5 million, and the banking system's…arrow_forwardIn what way is it true that barks make money by making money?. Context: Banks make money (profit) by loaning out their deposits at a higher interest rate than they pay their depositors However, it is the extension of new loans in search of profits that creates new demand deposits, thereby increasing the stock of money.arrow_forward
- Assuming an economy have only two commercial banks in it banking system, Classic Bank and Prudent Bank. The following shows the balance sheet of the two banks as at 2019. Classic Bank Balance sheet as at December, 2019 GHSm GHSm Assets: Liabilities & Equity: Reserves 1,000 Deposits 3,000 Securities 2,000 Equity 7,000 Loans & Advances 1,000 Property, Plant and Equipment 6,000 . 10,000 10,000 Prudent Bank Balance sheet as at December, 2019 GHSm GHSm Assets: Liabilities & Equity: Reserves 600 Deposits 2,500 Securities 1,500 Equity 4,400 Loans & Advances 800 Property, Plant and Equipment 4,000 . 6,900 6,900 Assume a required reserve ratio of 10%. What is the maximum amount that the money supply can be expanded? What would be the effect of a fall in reserve ratio to 5%, on the maximum amount that the money supply can be expanded?arrow_forwardEconomics Consider the model of financial intermediation seen in Chapter 3. Money is denoted by M, currency by C and demand deposits by D. Currency in the economy is initially $4,000, so C = $4,000. Suppose households deposit all of their currency in “Firstbank”. 1. Suppose banks hold 100% of deposits as reserves. Then the money supply is 2. Suppose that banks hold only 30% of deposits as reserves, and lend 70% of deposits. Right after Firstbank lends some of the deposits to borrowers, and before borrowers deposit the money from the loans, the money supply in the economy isarrow_forwardsuppose the required reserve ratio is 30%. How much can the entire banking system loan out? 2. if the entire amount of excess reserves were loaned out, what would happen to Money supply? 3. Now suppose the required reserve ratio was raised to 40%, and assume all excess reserves are lent out, what is the maximum amount of money the banking system could lend? 4. using the same situation as in “c”, suppose now that an entity, bought $1 T worth of bonds from the banking system. What is your answer to “c”?arrow_forward
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