Assignment 2a Assignment

Also known as Cash Reserve Ratio, it is the percentage of deposits which commercial banks are required to keep as cash according to the directions of the central bank. (Times) . When a bank is left with excess reserves they can do a federal refund and lend money to other banks that might be running low on reserves. The reserve ratio is applied when the bank is low on the amount of reserves it has, at this time the bank is than forced to reduce checkable deposits while reducing its money supply. In some cases is also may need to increase its reserves. The bank can increase its reserves by selling bonds, which would also lower the money supply in the

1. If the U.S. debt is growing, why doesn 't the government cut back on spending and can you make any recommendations on what to cut? (Hint: You should consider the list of "Largest Budget Items" listed on the Debt Clock before making recommendations.)

2. The government asks for loans from international banks on credit of the U.S. and the debt must be paid

deposit to satisfy the Minimum Balance Requirement. Once the savings is opened and funded, the

4) Briefly describe money’s function from the view of economists and write down the definition of M1 and M2.

B: constant short-term interest rates in the near future, and further out in the future

3. Government debt-level: The long period with high yearly budget deficits (starting in 1981), caused a situation where the debt-to-GDP ratio since 1993, was always found to be at an unhealthy territory above 94%. In the aftermath of the GFC the debt level worsened reaching to 120% of the GDP as the Government’s commitment towards social and other unproductive schemes continued. It kept worsening as the GDP growth rates collapsed in the aftermath of GFC and had reached to an unsustainable level triggering the likely default.

The Central Bank is authorized to fix minimum or maximum amounts of deposits or specify the minimum and maximum tenor of any of the deposits accepted by licensed institutions. However, such a specification will not affect an existing deposit account or existing agreement with a customer.

There are basically two types of deposits and their nature varies due to time factor, which are:

The quantity theory of money, as restated by Friedman, leads to a constant money growth rule. Monetarists believe that “variation in the money supply has major influences on national real output in the short run and the price level over longer periods, and that objectives of monetary policy are best met by targeting the growth rate of the money supply rather than by engaging in discretionary monetary policy”(). The relationships can be illustrated in the following equation,

National debt is a problem that can inflict any country including the developed countries. Almost all countries go into budget deficit one way or the other and end up borrowing money. The most direct effect of the government debt is to place a burden on future generations of taxpayers. When these debts and accumulated interest come due, future taxpayers will face a difficult choice. Inheriting such a large debt cannot help but lower the living standard of future generations. In the 1960s and 1970 some developing countries were encouraged to borrow money to service old debts and also to finance development projects in their country like infrastructure. This has been necessitated by the

Reduces the depositor’s risk to some extent by keeping a proportion of deposits in liquid form.

A country burdened with an enormous debt means tax increases in the near-term to finance debt and its interest payments —consuming most of government revenues and crowding-out investment in priority areas such as education and health care. Such country is susceptible to external shocks such as global recession or financial crisis and most importantly, the country leaves an obligation that will pass along to the next generation.

“A Bank is defined as an institution which collects surplus funds from the public, safeguards them, and makes them available to the true owner when required and also lends sums be their true owners to those who are in need of funds and can provide security.”

Deposits are backbone to bank as it is to the body of man. It is the lifeblood of a bank. The deposit of a bank is useful in many ways. The total deposits of MCB are growing since its inauguration but after privatization there is a sharp incline in over all deposits of the bank. The