08. Assuming the Federal Reserve will not help, what steps a bank is likely to take in order to quickly address the problem of a large reserve shortfall? a) Call back loans, asking customer to pay the whole amount right away. b) Stop lending and wait for loan repayments to restore the bank's reserve position. c) Borrow reserves from other banks. d) Sell its real estate holdings such as its branch buildings. e) Sell parts of the bank's loan portfolio to other banks or financial service companies.

08. Assuming the Federal Reserve will not help, what steps a bank is likely to take in order to quickly address the problem of a large reserve shortfall? a) Call back loans, asking customer to pay the whole amount right away. b) Stop lending and wait for loan repayments to restore the bank's reserve position. c) Borrow reserves from other banks. d) Sell its real estate holdings such as its branch buildings. e) Sell parts of the bank's loan portfolio to other banks or financial service companies.

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 5CQ

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Similar questions

Which of the following activities will affect a bank’s required reserves? why? a. The local Girl Scout troop collects coins and currency to buy a new camping stove. The troop deposits $250 in coins and opens a small-time deposit. b. You decide to move $200 from your MMDA to your NOW account. c. You sell your car to the teller at your bank for $5,000. The teller pays with a check drawn on the bank, and you deposit the check immediately into your checking account at the bank
If banks decide to hold some of their excess reserves instead of lending them all out, then: A) the money multiplier will be less than 1 divided by the required reserve ratio. B) depositors will have to borrow more in order to increase the money supply. C) the money multiplier becomes 1 divided by the excess reserves. D) a loan of $1 will lead to a change in the money supply by a multiple amount equal to 1 divided by the required reserve ratio.
When a bank issues a loan to a customer: A) bank assets fall by the amount of the loan. B) the composition of bank assets changes so that bank reserves increase and the value of bank loans decreases. C) bank assets rise by the amount of the loan. D) the composition of bank assets changes so that bank reserves decrease and the value of bank loans increases.
The central bank buys $10,000 worth of bonds in the open market from Elaine, who deposits the proceeds in her checking account at MSM Bank. The required reserve ratio is 5%. (a) What is the amount by which MSM Bank’s liabilities have changed? Explain. (b) Calculate the change in required reserves for MSM Bank. Show your work. (c) What is the dollar value of the maximum amount of new loans MSM Bank can initially make as a result of Elaine’s deposit? Explain. (d) Based on the central bank’s open-market purchase of bonds, calculate the maximum amount by which the money supply can change throughout the banking system. Show your work. (e) How will the change in the money supply in part (d) affect aggregate demand and the price level in the short run? Explain.
The task I am struggling with: Tracy Williams deposits $500 that was in her sock drawer into a checking account at the local bank. The reserve ratio is 10%. a) how dies the deposit initially change the T-account of the local bank? How does it change the money supply? b) If the bank maintains a reserve ratio of 10%, how will it respond to the new deposit? c) if every time the bank makes a loan, the loan results in a new checkable bank deposit in a different bank equal to the amount of the loan, by how much could the total money supply in the economy expand in response to Tracy´s initial cash deposit of $500? Thank you very much for your help.
When $1 million is deposited at a bank, the required reserve ratio is 20 percent, and the bank chooses not to hold any excess reserves but instead makes loans, then in the bank's final balance sheet. Choose form options A) the assets at the bank increase by $200,000. B) the liabilities of the bank increase by $200,000. C) reserves increase by $200,000. D) all of the above occur.
Your bank has the following balance sheet: Assets Liabilites Reserves $50 million Checkable Deposits $200 million Securites $50 million Bank Capital $50 million Loans $150 million If the required reserve ratio is 10%, what possible actions can the bank manager take if there is an unexpected deposit outflow of $50 million?
If a bank has $100,000 of checkable deposits, a required reserve ratio of 20 percent, and it holds $40,000 in reserves, then the maximum deposit outflow it can sustain without altering its balance sheet is A) $30,000. B) $25,000. C) $20,000. D) $10,000.
The Bank of Canada sets the reserve requirement, which banks must meet through deposits at the Bank of Canada and cash held at the bank. What do these requirements achieve? Check all that apply. They help to facilitate transfers of funds between banks when a customer from one bank writes a cheque to a customer of another. They help to control the money supply. They help to prevent bank runs by reassuring the public that banks will not make too many loans and run out of cash. They mean that a bank must have one dollar of deposits for every dollar it lends.
A bank has outstanding loans of $7,500, reserves of $2,500, and deposit liabilities of $10,000. If the required reserve ratio is 10%, this bank: A. Is holding excess reserves of $1,000 B. Is in a position to make a new loan for $1,500 C. Is in a position to make a new loan for $2,500 D. Has less reserves than required
When the reserve requirement changes, which of the following will change for an individual bank? Multiple Choice a.) transactions account balances and lending capacity b.) required reserves, excess reserves, and lending capacity c.) transactions account balances, total reserves, and excess reserves d.) total reserves, required reserves, and excess reserves
A chartered bank has $1 million in deposits and $40,000 in desired reserves. Its excess reserves are initially zero. a. The reserve ratio in the banking system is .......%. b. If a further $100,000 is deposited in this bank then the bank's desired reserves increase by $.......while the bank's excess reserves increase by $........