The following is the balance sheet of the Bank of Your Class Assets Liabilities
ID: 1110987 • Letter: T
Question
The following is the balance sheet of the Bank of Your Class
Assets
Liabilities
Cash $ 12,000
Deposits with the Fed 10,000
Loans 278,000
Deposits $ 240,000
Capital 60,000
Total $ 300,000
Total $ 300,000
Assume the RRR is 8%
Calculate the following for the Bank of Your Class.
RR =
AR =
ER =
NL =
If the new loan created by the Bank of Your Class is being deposited back with this bank and there is no money drain, what would be the excess reserves of this bank after the deposit has been made and how much new loan can this bank create after the deposit
List three main tools available to the Fed to change the money supply in the economy.
Which tool do you think is most commonly used?
If the Fed wanted to decrease supply of money in the economy, would the Fed buy or sell securities in the open market and what would be the first effect of this policy.
Assets
Liabilities
Cash $ 12,000
Deposits with the Fed 10,000
Loans 278,000
Deposits $ 240,000
Capital 60,000
Total $ 300,000
Total $ 300,000
Explanation / Answer
Required reserves = deposits * rrr
= 240000*0.08 = 19200
Excess reserves deposits-required reserves
=240000-19200=220800
New loans= 220800.
Excess reserves after new loan back to bank = 220800+ (220800-(220800*0.08) )
= 220800+203136
=423936
New loans can be made by bank= $423936.
THe three main tools available to the Fed to change the money supply in the economy are as :
The tool i think is most commonly used is the open market operations of buying and selling of government securities.
If fed want to decrease the money supply, then the fed sell securities In the open market .The first effect of this policy is the decrease in money supply and increase in the interest rate.
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