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Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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
Transcribed Image Text:The required reserve ratio in this economy is%. (Enter your response as an integer.)
If the total money stock (supply) is $200,000, the total amount of reserves held in the banking system is $ . (Enter your response as an integer.)
The Sylvania Central Bank decides that it wants to cut the money stock in half. It is considering an open market operation.
With commercial banks holding 10 percent of their checking deposits as excess reserves and the required reserve ratio equal to the value computed above, the Central Bank should
V bonds worth $. (Enter your response
as an integer.)

Transcribed Image Text:Challenge Problem. Assume that the public in the small country of Sylvania does not hold any cash. Commercial banks, however, hold 10 percent of their checking deposits as excess reserves, regardless of the interest rate. In
the questions that follow, the "money multiplier" is given by 1/ (RR+ ER),
where
RR = the percentage of deposits that banks are required to keep as reserves
ER = the percentage of deposits that banks voluntarily hold as excess reserves
Consider the balance sheet of one of several identical banks
Assets
Liabilities and Net Worth
Reserves
600
Checking Deposits
2,400
Loans
1,800
Net Worth
Total Assets
2,400
Liabilities and Net Worth
2,400
Expert Solution
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- Nonearrow_forward3) Suppose there is a 10% reserve requirement, and the bank has the following Balance Sheet Assets Reserves Loans Securities Liabilities 55M Deposits 250M Bank Capital 45M 350M 50M Now, let's suppose there is a deposit outflow of $60 million. If the bank only finances its reserve shortages by borrowing from the Federal Reserve, show the bank's balance sheet after the deposit outflow and receiving the loan from the Fed.arrow_forwardSuppose that Big Bucks Bank has the simplified balance sheet shown below. The reserve ratlo Is 20 percent. Assets (1) (2) Liabilities and net worth (1) (2') Reserves 26,000 Checkable deposits $ 100,000 Securities 38,000 Loans 36,000 Instructions: Enter your answers as a whole number. a. What is the maximum amount of new loans that Big Bucks Bank can make? Using the table above, show In columns 1 and 1' how the bank's balance sheet wll appear after the bank has lent this additional amount by Inserting the new values Into the gray shaded cells of the glven table. b. By how much has the money supply changed? C. How will the bank's balance sheet appear after checks drawn for the entire amount of the new loans have been cleared agalnst the bank? Show the new balance sheet in columns 2 and 2' by Inserting the new values Into the gray shaded cells of the given table. d. Using the original figures, revisit questions a, b, and cbased on the assumption that the reserve ratio is now 15 percent.…arrow_forward
- 8arrow_forward6. Marly Bank currently has $650 million in transaction deposits on its balance sheet. The current reserve requirement is 10 percent, but the Federal Reserve is decreasing this requirement to 9 percent. a. Show the balance sheet of the Federal Reserve and Marly Bank if Marly Bank converts all excess reserves to loans, but borrowers return only 60 percent of these funds to National Bank as transaction deposits. b. Show the balance sheet of the Federal Reserve and Marly Bank if Marly Bank converts 90 percent of its excess reserves to loans and borrowers return 75 percent of these funds to Marly Bank as transaction deposits.arrow_forward
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