EBK FOUNDATIONS OF ECONOMICS
8th Edition
ISBN: 8220103632225
Author: PARKIN
Publisher: PEARSON
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Chapter 27, Problem 11SPPA
To determine
To explain:
If the people's bank of China will buy or sell the securities and the impact of open market operation on the
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64. What does it mean when a currency is "fractionally backed"?
Banks have many more claims outstanding against them than they have reserves available to pay those claims.
The currency is partially backed by the nation's supply of gold.
Banks maintain a fixed fraction of their outstanding deposits as cash deposits with the central bank.
All paper currency is convertible to gold.
A bank's currency is fractionally backed by its supply of gold.
2. At the Monetary Policy Meeting hold on 5th of November 2010, the Policy Board of
the Bank of Japan decided on purchases of exchange-traded funds (ETFS) and Japan real
estate investment trusts (J-REITS). The Bank decided the principal terms and conditions
governing operational details of purchases of ETFS and J-REITS, such as the specifics of
those to be purchased and the method of purchase in which the Bank appoints a trust
bank as trustee (buying different assets from the market). Can you explain -using
graphs- what is the effect in the money market? Why has the Central Bank taken this
decision? Explain in detail and use the money market and the IS-LM market.
How do I do this?
Chapter 27 Solutions
EBK FOUNDATIONS OF ECONOMICS
Ch. 27 - Prob. 1SPPACh. 27 - Prob. 2SPPACh. 27 - Prob. 3SPPACh. 27 - Prob. 4SPPACh. 27 - Prob. 5SPPACh. 27 - Prob. 6SPPACh. 27 - Prob. 7SPPACh. 27 - Prob. 8SPPACh. 27 - Prob. 9SPPACh. 27 - Prob. 10SPPA
Ch. 27 - Prob. 11SPPACh. 27 - Prob. 12SPPACh. 27 - Prob. 13SPPACh. 27 - Prob. 1IAPACh. 27 - Prob. 2IAPACh. 27 - Prob. 3IAPACh. 27 - Prob. 4IAPACh. 27 - Prob. 5IAPACh. 27 - Prob. 6IAPACh. 27 - Prob. 7IAPACh. 27 - Prob. 8IAPACh. 27 - Prob. 9IAPACh. 27 - Prob. 10IAPACh. 27 - Prob. 11IAPACh. 27 - Prob. 1MCQCh. 27 - Prob. 2MCQCh. 27 - Prob. 3MCQCh. 27 - Prob. 4MCQCh. 27 - Prob. 5MCQCh. 27 - Prob. 6MCQCh. 27 - Prob. 7MCQCh. 27 - Prob. 8MCQ
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- Explain how to use an open market operation to expand the money supply.arrow_forwardIn a program of deposit insurance as it is operated in the United States, what is being insured and who pays the insurance premiums?arrow_forwardExplain why the money listed under assets on a bank balance sheet may not actually be in the bank?arrow_forward
- Suppose the Fed conducts an open market purchase by buying 10 million in Treasury bonds from Acme Bank. Sketch out the balance sheet changes that will occur as Acme converts the bond sale proceeds to new loans. The initial Acme bank balance sheet contains the following information: Assets - reserves 30, bonds 50, and loans 50; Liabilities - deposits 300 and equity 30.arrow_forwardSuppose the Fed conducts an open market sale by selling $10 million in Treasury bonds to Acme Bank. Sketch out the balance sheet changes that will occur as Acme restores its required reserves (10% of deposits) by reducing its loans. The initial balance sheet for Acme Bank contains the following information: Assets - reserves 30, bonds 50, and loans 250; Liabilities - deposits 300 and equity 30.arrow_forwardThe term moral hazard describes increases in risky behavior resulting from efforts to make that behavior safer. How does the concept of moral hazard apply to deposit insurance and other bank regulations?arrow_forward
- 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 5 Checkable deposits 50 Loans 25 Securities 20 Total 50 Total 50 What is the required reserve ratio? 25% 40% 5% 10% Suppose that the Federal Reserve (the "Fed") buys $4 million of bonds from a bond dealer, who immediately deposits the funds in her checking account. What is the initial impact of this transaction? Checkable deposits rise by $4 million, and the banking system's holdings of securities rise by $4 million. The banking system's holdings of securities rise by $4 million, and the banking system's total reserves fall by $4 million. Checkable deposits rise by $4 million, and the banking system's total reserves rise by $4 million. The banking system's holdings of securities fall by $4 million,…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 10 Checkable deposits 25 Loans 5 Securities 10 Total 25 Total 25 What is the required reserve ratio? 5% 40% 25% 10% Suppose that the Federal Reserve (the "Fed") sells $3 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? The banking system's holdings of securities fall by $3 million, and the banking system's total reserves rise by $3 million. Checkable deposits fall by $3 million, and the banking system's total reserves fall by $3 million. Checkable deposits fall by $3 million, and the banking system's holdings of securities fall by $3 million.…arrow_forward2arrow_forward
- How to figure out the banks' excess reserves.arrow_forward10. Consider the following situation in the Canadian banking system: • The Bank of Canada purchases $5 million worth of government securities from an investment dealer with a cheque drawn on the Bank of Canada. • The dealer deposits this cheque at Bank XYZ, a commercial bank. • The target reserve ratio for all commercial banks is 20%. • All commercial banks operate with no excess reserves. • There is no cash drain. The maximum creation of new deposits by the banking system, including the dealer's original deposit at Bank XYZ, is $25 million. $15 million. $22.5 million. $5 million. $20 million.arrow_forwardQuestion 8 Homework • Answered ⚫ Due Jul 24th, 11:50 PM Assume University Bank desires to hold 10% of deposits as reserve balances. Based on the t-account below: T-Account for University Bank Assets ($millions) Liabilities ($millions) Loans 40 Deposits 100 Securities 40 Reserve balances 20 Select an answer and submit. For keyboard navigation, use the up/down arrow keys to select an answer. a University Bank could increase loans by $10 million, ceteris paribus. b University Bank could increase securities by $10 million, ceteris paribus. C University Bank could increase reserve balances by $10 million, ceteris paribus. d Answer A and Answer B are both options available to University Bank, ceteris paribus. Your answerarrow_forward
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