Green Valley bank currently has Rs 1,000 million in transaction deposits on its balance sheet. Central bank currently set the reserve requirement at 10 percent of transaction deposits. a. If the central bank decreases its reserve requirement to 6 percent, show the balance sheet of Green Valley bank and central bank system just before and after the full effect of the reserve requirement change. Assume Green Valley bank withdraws all excess reserve and gives out loans, that borrowers eventually return all these funds to Green Valley bank in the form of transaction deposits. b. Redo part (a) using 14 percent reserve requirement.

Green Valley bank currently has Rs 1,000 million in transaction deposits on its balance sheet. Central bank currently set the reserve requirement at 10 percent of transaction deposits. a. If the central bank decreases its reserve requirement to 6 percent, show the balance sheet of Green Valley bank and central bank system just before and after the full effect of the reserve requirement change. Assume Green Valley bank withdraws all excess reserve and gives out loans, that borrowers eventually return all these funds to Green Valley bank in the form of transaction deposits. b. Redo part (a) using 14 percent reserve requirement.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Problem 2.12. Excess reserve Consider a central bank policy to maintain 9 percent reserves on deposits held by commercial banks. National Bank currently has Rs 10 million in deposits and holds Rs 1 million in reserves at the central bank. a. What is the excess reserve ratio? What will be the requirements if the bank is to add Rs 500,000 additional deposits?
8. When the interest on reserve balances rate is higher than the federal funds rate, banks can a. lend at the interest rate on reserve balances rate and borrow at the federal funds rate, earning a profit on the difference. b. borrow at the federal funds rate and deposit at the interest on reserve balances rate, earning a profit on the difference. c. lend at the federal funds rate and borrow at the interest on reserve balance rate, earning a profit on the difference. d. borrow at the interest on reserve balances rate and deposit at the federal funds rate, earning a profit on the difference.
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If initial fresh deposits with banks is $25000and legal reserve ratio is $20%calculate total money will be created in the economy?
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Assume that the commercial banking system has 500TL of deposits and the banks hold no excess reserves. The required reserve ratio is 10%. If the Central Bank sells T-bills in the amount of 25TL and banks lend to the maximum extent permitted, assuming no cash drain, loans: a.decrease by 225TL b.decreases by 20TL c.decrease by 100TL d.increase by 25TL e.decrease by 25