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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Chapter 39, Problem 9DQ
To determine
Different macro-economic views.
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After staying virtually flat for about a year and a half, the average lending rate of banks has started to show signs of decline in April after the Bank of Ghana reduced the monetary policy rate the month before. The Summary of Economic and Financial Data (May 2020) published by the Bank of Ghana has shown that average lending rate has finally moved out of its comfort zone to a step downward. Prior to recording 22.38 percent in April, the average lending rate has since the past 17 months (December 2018) not come below 23%.How would banks benefit when interest rates decrease?
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Refer to the table below and assume that the Fed’s reserve ratio is 10 percent and the economy is in a severe recession. Also suppose that the commercial banks are hoarding all excess reserves (not lending them out) because of their fear of loan defaults. Finally, suppose that the Fed is highly concerned that the banks will suddenly lend out these excess reserves and possibly contribute to inflation once the economy begins to recover and confidence is restored.
(1)
(2)
(3)
(4)
(5)
(6)
(7)
Reserve Ratio, %
Checkable Deposits
Actual Reserves
Required Reserves
Excess Reserves
Money-Creating Potential of Single Bank, = (5)
Money-Creating Potential of Banking System
(1) 10
$26,000
$11,000
$2600
$8400
$8400
84,000
(2) 20
26,000
11,000
5200
5800
5800
29,000
(3) 25
26,000
11,000
6500
4500
4500
18,000
(4) 30
26,000
11,000
7800
3200
3200
10,667
A) By how many percentage points would the Fed need to increase the reserve ratio to eliminate 30.95% of the excess reserves?…
Suppose we start with a general equilibrium, and the economy experience an improvement in payment technology. Which of the following statements correctly describes the difference between the initial general equilibrium and the final general equilibrium
1. the real interest rate is greater under the final equilibrium
2. the real interest rate is smaller under the final equilibrium
3. the real interst range does not change under the final equilibrium
4. None of the above
Chapter 39 Solutions
Economics (Irwin Economics)
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