26. Sally's grandmother has kept $100,000 in a cookie jar for years and gives it so Sally, who immediatelyputs it into her bank in a savings account. The bank has a 20% reserve rate. Which of the following istrue?1.Excess reserves increase by $20,000II.The money supply increases by as much as $120,000III.There is no change in the bank's money supplyIa.I onlyb. II onlyC.I and IId. None of the above4DELL33US 19

I. Excess reserves increase by $20,000:The amount of reserves that banks hold in excess of what is…

Answered: 26. Sally's grandmother has kept…

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter27: Money And Banking

Section: Chapter Questions

Problem 31P: Humongous Bank is the only bank in the economy. The people in this economy have 20 million in money,...

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Humongous Bank is the only bank in the economy. The people in this economy have 20 million in money, and they deposit all their money in Humongous Bank. Humongous Bank decides on a policy of holding 100 reserves. Draw a T-account for the bank. Humongous Bank is required to hold 5 of its existing 20 million as reserves, and to loan out the rest. Draw a T-account for the bank after it has made its first round of loans. Assume that Humongous bank is part of a multibank system. How much will money supply increase with that original 19 million loan?
Can you name some item that is a store of value, but does not serve the other functions of money?
1. You deposit $100 of currency into your account. Explain what happens to reserves , checkabledeposits, and monetary base? 2. Explain what the shadow banking system is and how it works. 3. Your bank has the following balance sheet:Assets LiabilitiesReserves $70 million Checkable deposits $200 millionSecurities $50 millionLoans $130 million Bank capital $50 millionIf the required reserve ratio is 10%, what actions should the bank manager take if there is anunexpected deposit outflow of $50 million? Explain your answer. 4. Explain and demonstrate graphically that if the central bank pursues targeting a monetaryaggregate, it is likely to lose control over the interest rate. 5. In the market for reserves, the federal funds rate is equal to the interest rate paid on excessreserves. Explain and demonstrate graphically the effect of an open market sale on the federalfunds rate.
1. Explain why you think the Federal Reserve Bank tracks M1 and M2 2. Humongous Bank is the only bank in the economy. The people in this economy have $20 million in money, and they deposit all their money in Humongous Bank. a. Humongous Bank is required to hold 5% of its existing $20 million as reserves, and to loan out the rest. Draw a T-account for the bank after this first round of loans has been made. b. Assume that Humongous bank is part of a multibank system. How much will money supply increase with that original loan of $19 million (show your work)? 3. Suppose that consumers have a major change in their consumption/savings preferences. As a result of a serious recession they decide to consume less and save more. Illustrate a graph that shows how this would affect the demand and supply for borrowing money with credit. 4. Explain the difference between how you would characterize bank deposits and loans as assets and liabilities on your own personal balance sheet and how a bank…
2. Assets Liabilities Total Reserves 2,000,000 Transaction Deposits Required Excess Govt. Sec. 2,225,000 Loans Total Assets Total Liabilities a. Assume the required reserve rate is 20%. What are required reserves for this bank? b. What are transactions deposits and total liabilities for the bank? c. How much more money can this bank loan out at this time? Wells Fargo Bank 750,000
Humongous Bank is the only bank in the economy.The people in this economy have $20 million in money,and they deposit all their money in Humongous Bank.a. Humongous Bank decides on a policy of holding100% reserves. Draw a T-account for the bank.b. Humongous Bank is required to hold 5% of itsexisting $20 million as reserves, and to loan outthe rest. Draw a T-account for the bank after ithas made its first round of loans.c. Assume that Humongous bank is part of amultibank system. How much will money supplyincrease with that original $19 million loan?
8. A bank has an 8 percent reserve requirement, $10.000 in deposits, and has loaned out all it can, given the reserve requirement. a. It has S80 in reserves and $9,920 in lonns blt has S800 in reserves and $9.200 in loons e. It has S1.250 in reserves and $8,750 in loans. d. It has $8,000 in reserves and $2,000 in loans.
3 When the Reserve Bank sells government securities, the banks' Group of answer choic reserve requirements will increase and lending will contract, causing a decrease in the money suppl reserves will decrease and lending will contract, causing a decrease in the money suppl reserves will increase and lending will expand, causing an increase in the money suppl reserves/deposit ratio will increase and lending will expand, causing an increase in the money suppl reserves will increase and lending will contract, causing no change in the money suppl y.y.y.y.y.esoney supply.
"If the required reserve ratio is 20% and the current deposit is $50,000. Calculate the amount of new money created." O"$200,000" O "$250,000" O"$10,000" "$40,000"
1. The Federal Reserve a. Is the large stockpile of currency reserved for wartime uses b. May be used for Federal, but not state government uses c. Is responsible for controlling the money supply d. Was established in 1789 with the ratifying of the Constitution 2.In a system of 100% reserve banking, $100 is deposited. What is the money multiplier? a. Depends on what is withdrawn from the account b. 1 c. $100 d. There is insufficient information to state the value of the money multiplier

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