Suppose the Federal Reserve (Fed) decides the current money supply of $2.1 trillion is too low, and that an increase of $400 billion is necessary. What tool can the Fed use to accomplish this increase? Assume the current reserve ratio is 0.1. Buy government securities. Increase the interest paid on bank reserves. Increase the reserve ratio. Sell government securities.
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- Explain what would happen if banks were notified they had to increase their required reserves by one percentage point from, say, 9 to 10 of deposits. What would their options be to come up with the cash?Suppose you win on a scratch-off lottery ticket and you decide to put all of your $2,500 winnings in the bank. The reserve requirement is 10%. What is the maximum possible increase in the money supply as a result of your bank deposit? maximum increase: $ Which events could cause the increase in the money supply to be less than its potential? All money loaned out is deposited back into the banking system. Banks choose to loan out all excess reserves. SEL Some loan recipients choose to hold some cash instead of depositing all of it in banks. Banks decide to keep some excess reserves on hand. C Z MODE PAYLA I topm PEDRULESTAN SVETE D P Activate Windows Salto Settings to activate WindowsYou are given the following T-account for PNC Bank. Reserves are $20,000, Loans are $15,000, and Demand Deposits are $35,000. The FED has set the required reserve ratio of 25%. Use previous information to solve for excess reserves? $0 $3,750 $11,250 O $17,500
- The banking system currently has $10 billion of reserves, none of which are excess. People hold only deposits and no currency, and the reserve requirement is 10 percent. If the Fed raises the reserve requirement to 12.5 percent and at the same time buys $1 billion worth of bonds, then by how much does the money supply change? a) It falls by $12 billion. b) It falls by $19 billion. c) It falls by $21 billion. d) It rises by $19 billion.Suppose Robina Bank receives a deposit of $54,589 and the reserve requirement is 3%. Answer the questions using this information. Round your answers to two decimal places. What is the amount that Robina Bank must keep on hand as required by the Federal Reserve (Fed)? keep on hand: $ What is the amount that Robina Bank must have in excess reserves from this initial deposit? excess reserves: S What is the total change in the M1 money supply from this one deposit? total change: $Question 1 In the market for reserves, say that the federal funds rate is 2.5% and the discount rate is at 5.5%. If the Federal Reserve Bank securities in the open market, then the supply curve will shift right and the discount rate will O buys; rise O buys; fall sells; rise sells; fall Question 2 Consider the market for reserve where currently, the federal funds rate is equal to the discount rate. If the Federal Reserve Bank lowers the discount rate, then this should shift the part of the supply curve and so, the equilibrium rate for reserves will O vertical; fall O vertical; rise horizontal; fall O horizontal; rise
- BUSN5 CH2 WKSMultiple ChoiceIdentify the choice that best completes the statement or answers the question.1. Define economics.a) a financial and social systemb) the study of a countryâs overall economic issuesc) the integration between consumers, families, and businessesd) the study of the choices that different entities make in allocating resources2. Macroeconomics focuses ona) the major issues facing the national economy, but has little or no relevance to individuals.b) smaller economic units such as individual consumers, families, and individual businesses operating within the economy.c) the major issues facing the national economy that may seem abstract, but directly affect an individualâs day-to-day life. d) the role of government, while microeconomics focuses on the private sector.3. After the collapse of the dot com bubble and the 9/11 terrorist attacks, the stock market depreciated and unemployment increased leading many to fear that the…ou just deposited $4,000 in cash into a checking account at the local bank. Assume that banks lend out all excess reserves and there are no leaks in the banking system. That is, all money lent by banks gets deposited in the banking system. Round your answers to the nearest dollar. If the reserve requirement is 1212%, how much will your deposit increase the total value of checkable bank deposits? $ If the reserve requirement is 44%, how much will your deposit increase the total value of checkable deposits? $ Increasing the reserve requirement the money supply.The Federal Reserve has decided it wants to increase interest rates by decreasing the money supply through deposits held at financial intermediaries. All else equal, if the reserve requirement is 10% for all deposits, and the Fed wants to decrease deposits by $100 million, which of the following actions should be taken? Assume no excess reserves exist in the banking system.a. Buy government securities from dealers totaling $1 billion.b. Sell government securities to dealers totaling $111 million.c. Buy government securities from dealers totaling $11.1 million.d. Sell government securities to dealers totaling $11.1 million.e. None of the above.
- Complete the following table to show the effect of a new deposit on excess and required reserves when the required reserve ratio is 20%. Hint: If the change is negative, be sure to enter the value as negative number. Amount Deposited Change in Excess Reserves Change in Required Reserves (Dollars) (Dollars) (Dollars) 750,000 Now, suppose First Main Street Bank loans out all of its new excess reserves to Kate, who immediately uses the funds to write a check to Hubert. Hubert deposits the funds immediately into his checking account at Second Republic Bank. Then Second Republic Bank lends out all of its new excess reserves to Shen, who writes a check to Poornima, who deposits the money into her account at Third Fidelity Bank. Third Fidelity lends out all of its new excess reserves to Valerie in turn. Fill in the following table to show the effect of this ongoing chain of events at each bank. Enter each answer to the nearest dollar. Increase in Deposits Increase in Required Reserves…The reserve requirement is 10%. Suppose that the Fed purchases $50,000 worth of U.S. government securities from a bond dealer, electronically crediting the dealer's deposit account at Reliable Bank. Which of the following correctly describes the immediate effect of this transaction? A. The required reserves of Reliable Bank increase by $50,000. B. The total reserves of Reliable Bank increase by $50,000. C. Reliable Bank can make $50,000 in new loans. D. The excess reserves of Reliable Bank increase by $50,000. -ம்macmillan learning Suppose that the legal reserve ratio set by the Fed is 10% and that the Fair Bank in Fairdealing, Missouri, initially has checkable deposit equal to $240 and a reserve account of $70. A customer of Fair Bank deposits $100 into her checking account. Fair Bank loans 80% of the deposit and places the rest in its reserves at the St. Louis Fed. For simplicity, assume the borrower received the loan as cash. How much does Fair Bank have in excess reserves after the deposit and loan? Number Place the figures below to represent changes in the accounts of Fair Bank and the Federal Reserve of St. Louis' balance sheets resulting from the deposit and loan. Hint Cash: Reserves: Loans: Property: $ +$100 +$80 Balance Sheet: Fair Bank Liabilities: Net equity: +$20 -$100 -$20 +$10 -$80 -$10 Balance Sheet: Saint Louis Fed Liabilities: Cash: Property: Loans: Previous Check Answer Next Exit