ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN: 9780190931919
Author: NEWNAN
Publisher: Oxford University Press
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Which volume of OMOS is required if banks expect to reduce their discount loans by $50 billion but desired changes of money supply is +$50 billion, so the Fed plans to reduce reserve ratio from 10% to 5% (current
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- Use the supply and demand analysis of the market for reserves to visually illustrate and explain how the following scenarios may arise in equilibrium: a) An increase in the reserve interest rate increases the interbank rate and makes it equal to the discount rate. *Please use a federal fund rate and reserves diagram like the one in the example below: **EXAMPLE OF DIAGRAM TO USE IS ATTACHEDarrow_forwardBank deposits (D) 350 Currency-to-deposits ratio (c) 0.20 Required reserve ratio (rr) 0.15 consider c=0.4. Find the level of required reserve ratio needed to keep the monetary base = 122.5 and the money supply fixed = 420 at the level you solvedarrow_forwardAssuming initially that the required reserve ratio = 15%, the currency-deposit ratio = 40%, and the excess reserve ratio = 5%, an increase in the excess reserve ratio to 10% causes the money multiplier to ________, everything else held constant. A) increase from 2.15 to 2.33 B) decrease from 2.33 to 2.15 C) increase from 1.54 to 1.67 D) decrease from 1.67 to 1.54arrow_forward
- Consider a system of banking in which the Federal Reserve uses required reserves to control the money supply (as was the case in the United States before 2008). Assume that banks do not hold excess reserves and that households do not hold currency, so the only money exists in the form of demand deposits. To further simplify, assume the banking system has total reserves of $400. Determine the money multiplier as well as the money supply for each reserve requirement listed in the following table. Reserve Requirement (Percent) 20 10 Simple Money Multiplier A higher reserve requirement is associated with a Money Supply (Dollars) money supply. Suppose the Federal Reserve wants to increase the money supply by $200. Maintain the assumption that banks do not hold excess reserves and that households do not hold currency. If the reserve requirement is 10%, the Fed will use open-market operations to $ worth of U.S. government bonds. Now, suppose that, rather than immediately lending out all…arrow_forwardWhat is the maximum impact on the money supply from the bond liquidation in the previous problem(Use positive or negative to show growth or contraction)? Required Reserve Ratio=20% Assets Liabilities Total Reserves=$50 Demand Deposits=$100 Loans=$20 Bonds=$30arrow_forwardWhat is the defining difference among our various measures of money supply, such as M1 and M2? The defining difference is origin, whether the money is issued by the Federal Reserve Bank or the Federal Government The defining difference is liquidity, how quickly the instrument could be turned to cash and expended The defining difference is regulation, how much control the Federal Reserve Bank has over the relative amounts of M1 or M2 in circulation The defining difference is function, whether the money is used to meet transactions demand or asset demandarrow_forward
- You are given the following balance sheet of the Summer Bank (21) Balance sheet of the Winter bank Assets Liabilities Cash $ 8,000 Deposited with the Fed $ 5,000 Loans $ 117,000 Deposits $ 80,000 Capital $ 50,000 Total $ 130,000 Total $ 130,000 The required reserve ratio (RRR) on all deposits is 5% What, if any, are this bank's excess reserves? How much new amount of loan will this bank be able to create because of the excess reserves? How much new amount of loan the entire banking system be able to create because of the excess reserves? What would be the excess reserves of this bank after the RRR is changed to 4%? How much new amount of loan will this bank be able to create with the RRR of 4%? How much new amount of loan the entire banking system be able to create because of the excess reserves? What happened to the money supply after the…arrow_forwardAssume the required reserve ratio is 10 percent. If the Federal Reserve buys $10 million in government securities from the public, then the money supply will immediately: Multiple Choice increase by $10 million, and the maximum money-lending potential of the commercial banking system will increase by $100 million. increase by $10 million, but the maximum money-lending potential of the commercial banking system will decrease by $10 million. decrease by $10 million, and the money-lending potential of the commercial banking system will decrease by $100 million increase by $10 million, and the maximum money-lending potential of the commercial banking system will increase by $10 million.arrow_forwardWhat may limit the size of the money supply expansion to an amount less than indicated by the oversimplified deposit creation formula?arrow_forward
- The reserve requirement, open market operations, and the moneysupply Consider a system of banking in which the Federal Reserve uses required reserves to control the money supply (as was the case in the United States before 2008). Assume that banks do not hold excess reserves and that households do not hold currency, so the only money exists in the form of demand deposits. To further simplify, assume the banking system has total reserves of $300. Determine the money multiplier as well as the money supply for each reserve requirement listed in the following table. Reserve Requirement Simple Money Multiplier Money Supply (Percent) 5 (0.5, 1, 5, 10 or 20) (150, 300, 1500, 3000 or 6000) 10 (0.5, 1, 5, 10 or 20) (150, 300, 1500, 3000 or 6000) A higher reserve requirement is associated with a (LARGER or SMALLER) money supply. Suppose the Federal Reserve wants to increase the money supply by $200. Maintain the assumption that banks do not…arrow_forwardIf currency in circulation equals $500 million, checkable deposits equal $2 billion, reserves equal $200 million, and the required reserve ratio is 0.10, the money multiplier equals ____ (Report with two decimal places). (Please note that 10 is already incorrect)arrow_forwardAssume economic growth is weak, reserves are abundant, and the inflation rate has been below the Fed's price stability goal for a significant period of time. Which of the following would best describe an appropriate policy action? a. Lower the target range for the federal funds rate and use open market operations to increase the level of reserves in the banking system. b. Raise the target range for the federal funds rate while simultaneously decreasing the interest on reserve balances rate, overnight reverse repo rate, and discount rate. c. Lower the target range for the federal funds rate and simultaneously decrease the interest on reserve balances rate, overnight reverse repo rate, and discount rate. d. Raise the target range for the federal funds rate and simultaneously increase the interest on reserve balances rate, overnight reverse repo rate, and discount rate.arrow_forward
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