ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN: 9780190931919
Author: NEWNAN
Publisher: Oxford University Press
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Question

Can someone help solve a-c? please and thank you

The following is the bank balance sheet for JMH Bank. Assets Reserves Government Securities Loans Liabilities $20,000 Demand Deposits $15,000 $65,000 $100,000 The central bank buys $3,000 worth of securities (bonds) from JMH Bank. The required reserve ratio is 20%. (a) Immediately after the central bank's open-market bond purchase, will JMH Bank's liabilities increase, decrease, or stay the same? Explain. (b) By what amount will JMH Bank's reserves change after the central bank's open-market bond purchase and before any new loans are made? Explain. (c) As a result of the central bank's purchase of bonds, what is the dollar value of the maximum amount of new loans JMH Bank can make? Explain. (d) Calculate the maximum amount by which the money supply can change throughout the fractional banking system if JMH loans out the maximum amount from part (c). Show your work. (e) How will the change in the money supply in part (d) affect consumption spending and real GDP in the short run? Explain.
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Transcribed Image Text:The following is the bank balance sheet for JMH Bank. Assets Reserves Government Securities Loans Liabilities $20,000 Demand Deposits $15,000 $65,000 $100,000 The central bank buys $3,000 worth of securities (bonds) from JMH Bank. The required reserve ratio is 20%. (a) Immediately after the central bank's open-market bond purchase, will JMH Bank's liabilities increase, decrease, or stay the same? Explain. (b) By what amount will JMH Bank's reserves change after the central bank's open-market bond purchase and before any new loans are made? Explain. (c) As a result of the central bank's purchase of bonds, what is the dollar value of the maximum amount of new loans JMH Bank can make? Explain. (d) Calculate the maximum amount by which the money supply can change throughout the fractional banking system if JMH loans out the maximum amount from part (c). Show your work. (e) How will the change in the money supply in part (d) affect consumption spending and real GDP in the short run? Explain.
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