This question is about monetary policy tools and tactics: a. Imagine a monetary system with just two commercial banks. Their balance sheets are: BANK A R = 400 D = 6,200 L = 5,900 E = 100 BANK B R = 800 D = 5,800 L = 5,100 E = 100 Where R = reserves, L = loans to the private sector, D = deposits of the private sector and E = equity I. If the private sector holds notes and coins (c) of 600, what is the money stock? What is the reserve ratio of the system as a whole? Calculate the money multiplier. II. Suppose that bank A is in need of liquidity and sells part of its loans to bank B. Briefly discuss what happens to the reserve ratio of the system and the money multiplier as a result.
This question is about monetary policy tools and tactics: a. Imagine a monetary system with just two commercial banks. Their balance sheets are: BANK A R = 400 D = 6,200 L = 5,900 E = 100 BANK B R = 800 D = 5,800 L = 5,100 E = 100 Where R = reserves, L = loans to the private sector, D = deposits of the private sector and E = equity I. If the private sector holds notes and coins (c) of 600, what is the money stock? What is the reserve ratio of the system as a whole? Calculate the money multiplier. II. Suppose that bank A is in need of liquidity and sells part of its loans to bank B. Briefly discuss what happens to the reserve ratio of the system and the money multiplier as a result.
Macroeconomics: Private and Public Choice (MindTap Course List)
16th Edition
ISBN:9781305506756
Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Chapter13: Money And The Banking System
Section: Chapter Questions
Problem 17CQ
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1. This question is about monetary policy tools and tactics:
a. Imagine a monetary system with just two commercial banks. Their balance sheets are:
BANK A
R = 400 D = 6,200
L = 5,900 E = 100
BANK B
R = 800 D = 5,800
L = 5,100 E = 100
Where R = reserves, L = loans to the private sector, D = deposits of the private sector and E = equity
I. If the private sector holds notes and coins (c) of 600, what is the money stock? What is the reserve ratio of the system as a whole? Calculate the money multiplier.
II. Suppose that bank A is in need of liquidity and sells part of its loans to bank B. Briefly discuss what happens to the reserve ratio of the system and the money multiplier as a result.
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