Economics (Irwin Economics)
21st Edition
ISBN: 9781259723223
Author: Campbell R. McConnell, Stanley L. Brue, Sean Masaki Flynn Dr.
Publisher: McGraw-Hill Education
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Question
Chapter 36, Problem 5RQ
To determine
Required reserves .
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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?
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?
Chapter 36 Solutions
Economics (Irwin Economics)
Ch. 36.1 - Prob. 1QQCh. 36.1 - Prob. 2QQCh. 36.1 - Prob. 3QQCh. 36.1 - Prob. 4QQCh. 36.4 - Prob. 1QQCh. 36.4 - Prob. 2QQCh. 36.4 - Prob. 3QQCh. 36.4 - Prob. 4QQCh. 36.5 - Prob. 1QQCh. 36.5 - Prob. 2QQ
Ch. 36.5 - Prob. 3QQCh. 36.5 - Prob. 4QQCh. 36 - Prob. 1DQCh. 36 - Prob. 2DQCh. 36 - Prob. 3DQCh. 36 - Prob. 4DQCh. 36 - Prob. 5DQCh. 36 - Prob. 6DQCh. 36 - Prob. 7DQCh. 36 - Prob. 8DQCh. 36 - Prob. 1RQCh. 36 - Prob. 2RQCh. 36 - Prob. 3RQCh. 36 - Prob. 4RQCh. 36 - Prob. 5RQCh. 36 - Prob. 6RQCh. 36 - Prob. 7RQCh. 36 - Prob. 8RQCh. 36 - Prob. 9RQCh. 36 - Prob. 1PCh. 36 - Prob. 2PCh. 36 - Prob. 3PCh. 36 - Prob. 4PCh. 36 - Prob. 5PCh. 36 - Prob. 6PCh. 36 - Prob. 7P
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- Suppose 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_forwardBank 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.arrow_forwardConsider a situation where the central bank increases the money supply. equal, if nominal GDP increased by $800 billion during a time when veloc did the central bank increase the money supply? O $400 million O $200 million O $200 billion O $400 billion No new data to save. Last checkarrow_forward
- 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?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_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_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_forwardSuppose 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_forward
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