Assets Liabilities eseres $100 800 100 eills Refer to this scenario for all of t
ID: 2580293 • Letter: A
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Assets Liabilities eseres $100 800 100 eills Refer to this scenario for all of the questions on this problem set. Suppose the balance sheet shown is for the only bank in the banking system. The reserve requirement is 10%. If the Fed buys S50 worth of T-bills from this bank, immediately after that exchange, before the bank expands its lending in response, the bank's reserves would equal QUES TION 2 Assets eserves $100 800 100 eills Immediately after the Fed buys the securities, but before the bank expands its lending in response, the bank's excess reserves would equal QUESTION 3 In the initial balance sheet, Excess Reserves were equal to zero. Thus, as a result of the Feds purchase of $50 of T-bills, the initial change in Excess Reserves Once the banking system has fully rssponded to this change in reserves, the ultimats changs in landing the initial change inExoess Reserves x (1) QUESTION 4 As a result of the Fed's purchase of 350 of T-bills, once the banking sys em has fully responded to the change in reserves, the ulrimate change in deposits inirial change in Reserves x (1/rr)Explanation / Answer
fixing a reserve ratio , or doing open market operation,buying t bill from bank are different ways to amnupulate the economy and money supply in market.
1. as fed buys t bill from bank of 50$ , bank has now only 950 $ to lend , so as we now our reserve ratio is =100/1000) *100 = 10%
so bank reserve would equal to 10% of 950 i.e 95
2.bank excessive reserve is = 100 - 95 = 5$
3. in initial balanceshett excess reserve were 0
now exceesive reserve = 5
so the initial excessive reserve =5-0 = 5
change in lending = initial excessive reserve * 1/reserve ratio
=5 * / 0.10
=50
4. initial change in reserve = 100-95 = 5
ultimate change in deposit = 5*1/0.10 = 50
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