Fed Funds Rate 7.00% 6.50% 6.00% 5.50% 5.00% 4.50% 4.00% 3.50% 3.00% 2.50% 2.00% 1.50% 1.00% 0.50% 0.00% $130 Bank Excess Reserves ($Billion) Consider the above graph that shows demand for excess reserves by the banking system as a whole. The discount rate is 4.5 percent and the Fed pays an interest of 1.50 percent on excess reserves. Currently banks as a whole are holding an excess reserve of $70 billion. This means that the equilibrium fed funds rate is percent. The Fed increases the supply of excess reserves by $20 billion through an open market purchase of bonds. As a result, the equilibrium fed funds changes to percent. The Fed increases the supply of excess reserves by another $30 billion through another round of an open market purchase. As a result the equilibrium fed funds rate changes to percent. -

Fed Funds Rate 7.00% 6.50% 6.00% 5.50% 5.00% 4.50% 4.00% 3.50% 3.00% 2.50% 2.00% 1.50% 1.00% 0.50% 0.00% $130 Bank Excess Reserves ($Billion) Consider the above graph that shows demand for excess reserves by the banking system as a whole. The discount rate is 4.5 percent and the Fed pays an interest of 1.50 percent on excess reserves. Currently banks as a whole are holding an excess reserve of $70 billion. This means that the equilibrium fed funds rate is percent. The Fed increases the supply of excess reserves by $20 billion through an open market purchase of bonds. As a result, the equilibrium fed funds changes to percent. The Fed increases the supply of excess reserves by another $30 billion through another round of an open market purchase. As a result the equilibrium fed funds rate changes to percent. -

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?
In a program of deposit insurance as it is operated in the United States, what is being insured and who pays the insurance premiums?
4) Smart Financial starts its first day of operations with $15 million in capital. A total of $130 million in checkable deposits is received. The bank makes a $25 million commercial loan and another $50 illion in mortgages with the following terms: 200 Page 1 of 2 standar 30-year, fixed rate mortgages with a nominal annual rate of 5.25%, each for $250,000. Assume that required reserves are 11%. a. What does the bank balance sheet look like? b. How well capitalized is the bank? Show the calculation. c. Calculate the risk-weighted assets and risk-weighted capital ratio after Smart Financial's first day.
1 A banking system is described below. All $ millions. All banks keep a reserve ratio of 20%. [25] Assets Reserves 14.4 Loans 125 Liabilities Demand Deposits 80 Equity Property 59.4 Assume a new $8 million deposit is made from outside the banking system – possibly from another country. 1.1 Calculate the value of excess reserves, if any, after the new deposit is made. 1.2 Calculate the value of the money multiplier in this system. 1.3 Calculate the amount of new money the banking system can generate in new loans.
1. For this part think about Demand and supply in the market of Reserves. a. Who are on the demand side of the market? b. Who are on the supply side of the market? C. Assume equilibrium federal funds rate is strictly between discount rate and interest on reserves. Draw demand, supply and equilibrium for the market o. eserves below. (Label axis, curves and equilibrium point) d. raw NEW supply and demand graph for reserves on which equilibrium federal funds rate equals discount rate but is above interest on reserves. (again label axis, curves and equilibrium point) e. What happens on the First graph when discount rate drops? Show shift and explain how equilibrium federal funds rate and equilibrium quantity of reserves changes. (Write explanations below but make shifts on the graph for question (c)) f. - What happens on the Second graph when discount rate drops? Show shift and explain how equilibrium federal funds rate and equilibrium quantity or reserves changes. (Write explanations…
20. Bank of New City has $750 million in deposits. The required reserve ratio is 15%. Bank of New City must keep_______ in reserves. $150.5 million $60.5 million $112.5 million $160.5 million
Table 2 First National Bank Assets Liabilities and Owners' Equity Reserves $1,200 Deposits $9,000 Loans $8,000 Debt $800 Short-term securities $800 Capital (owners' equity) $200 Refer to Table 2. The required reserve ratio is 6 percent and First National Bank sells $150 of its short-term securi to the Federal Reserve. This action will increase First National's reserves by S150. Its excess reserves are $240. decrease First National's reserves by $150. Its excess reserves are $0. increase First National's reserves by $150. Its excess reserves increase by $150. increase First National's reserves by $150. Its total reserves increase by $150. both c and d above
Table 13.1: FIRST COMMERCIAL BANK Asset Liabilities Total Reserves: S150,000 s100,000 $1,000,000 $200,000 Deposits Net Worth Required Reserves Excess Reserves ? Loans $1,200,000 Total $1,200,000 Total 16. Refer to Table 13.1. First Commercial Bank's total loans equal $ a) 1,050,000 b) 1,200,000 c) 1,150,000 d) 1,250,000
Table 13.1: FIRST COMMERCIAL BANK Asset Liabilities S150,000 S100,000 Total Reserves: $1,000,000 $200,000 Deposits Net Worth Required Reserves ? Excess Reserves ? Loans $1,200,000 Total $1,200,000 Total 15. Refer to Table 13. 1. First Commercial bank's excess reserves equal $ a) 150,000 b) 250,000 c) 100,000 d) 50,000
Your bank has the following balance sheet: Assets Liabilities Checkable Reserves $90 million $380 million deposits $130 Securities million Loans $200 million Bank capital $40 million If the required reserve ratio is 20%, what will be the size of this bank (as measured by its total assets or liabilities) after $20 million deposit outflow if it just meets reserve deficiency by taking out a discount loan from the Federal Reserve? $402 million $400 million. OOOO $420 million. $412 million.