Question
In: Economics
Suppose there is only one bank in the economy, Happy Bank. The citizens in this economy...
Suppose there is only one bank in the economy, Happy Bank. The citizens in this economy have 20 million in money, and they have all deposited their money in Happy bank.
a. happy bank decides on a policy of holding 100% reserves. draw a T-account for the bank.
b. Now, happy 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.
c. Assume that Happy Bank is part of a multi-bank system. How much is the amount of money created through the multiple expansion of credit? How much is the total money supply in this economy?
Solutions
Rahul Sunny answered 2 years agoRelated Solutions
Suppose the Bank of Canada cares only about keeping the economy close to full-employment output. The...
Suppose the Bank of Canada cares only about keeping the economy
close to full-employment output. The Bank can target the real money
supply (thus keeping the LM curve fixed) or it can target
the real interest rate—changing the money supply and shifting the
LM curve, however, is necessary to prevent a change in the
real interest rate.
a. Which is the best policy if the main shocks to
the economy are shocks to the IS curve? Explain why.
b. Which...
3. The Iron Bank is the only bank in the economy; they have 100m of deposits...
3. The Iron Bank is the only bank in the economy; they have 100m
of deposits and a required reserve ratio of 5%. Their assets are
one-half in loans to business and one-half government bonds.
a. Draw their initial T-table of Assets and Liabilities. How
many assets do they have, once the money multiplier has
completed?
b. Next suppose the central bank purchases 5m of bonds from the
Iron Bank. Show the key steps as their T-table adjusts. What is...
2. The Iron Bank is the only bank in the economy; they have 200m of deposits...
2. The Iron Bank is the only bank in the economy; they have 200m
of deposits and a required reserve ratio of 10%. Their assets are
one-half in loans to business and one-half government bonds.
a. Draw their initial T-table of Assets and Liabilities. How
many assets do they have, once the money multiplier has
completed?
b. Next suppose the central bank purchases 2m of bonds from the
Iron Bank. Show the key steps as their T-table adjusts. What is...
Suppose we live in an economy with just one bank. Mary is the first customer of...
Suppose we live in an economy with just one bank. Mary is the
first customer of the bank and makes a deposit of $500. The
required reserve ratio is 10%. (Show Work)
(a) What is the excess reserve amount? With this amount of
excess reserve, is the bank allowed to make any loans?
(b) What is the maximum amount of loan that the bank can make if
the borrower does not withdraw the money.
(c) What is the maximum amount...
Consider the economy of Pomistan, where citizens consume only apples. Assume that apples are priced at...
Consider the economy of Pomistan, where citizens consume only
apples. Assume that apples are priced at $1 each. The government
has devised the following tax plans:
Plan A
•
Consumption up to 1,000 apples is taxed at 50%.
•
Consumption higher than 1,000 apples is taxed at 20%.
Plan B
•
Consumption up to 2,000 apples is taxed at 10%.
•
Consumption higher than 2,000 apples is taxed at 25%.
Use the Plan A and Plan B tax schemes to...
Consider an open economy with flexible exchange rates. Suppose that policy makers are happy with the...
Consider an open economy with flexible exchange rates. Suppose
that policy makers are happy with the level of output (unemployment
is at the natural rate) but that a large trade surplus has been
provoking complaints from other countries.
What kind of fiscal and/or monetary policy would you recommend
in order to reduce the trade surplus while keeping output
unchanged?
Consider an open economy with flexible exchange rates. Suppose that policy makers are happy with the...
Consider an open economy with flexible exchange rates. Suppose
that policy makers are happy with the level of output (unemployment
is at the natural rate) but that a large trade surplus has been
provoking complaints from other countries.
What kind of fiscal and/or monetary policy would you recommend in
order to reduce the trade surplus while keeping output
unchanged?
Suppose the economy is in long-run equilibrium. [Only one diagram is required for this question, draw...
Suppose the economy is in long-run equilibrium. [Only one
diagram is required for this question, draw and label clearly to
show all relevant points and moves]
[4 marks] Use the model of aggregate demand
and aggregate supply to illustrate the initial equilibrium (call it
point A). Be sure to include both-short run and long-run aggregate
supply.
[4 marks] The central bank raises the money
supply by 10%. Use the diagram you drew in part a) to show what
happens to...
Suppose economy is in long run equilibrium. [Only one diagram is required for this question, draw...
Suppose economy is in long run equilibrium. [Only one diagram is
required for this question, draw and label clearly to show all
relevant points and moves]
Use the model of aggregate demand and aggregate supply to
illustrate the initial equilibrium (call it point A). Be sure to
include both-short run and long-run aggregate supply.
The central bank raises the money supply by 10%. Use the
diagram you drew in part a) to show what happens to output and
price level...
Suppose that that there are 3 banks in the economy, call them Bank A, Bank B,...
Suppose that that there are 3 banks in the economy, call them
Bank A, Bank B, and Bank C. Suppose that that all bank reserve 20%
of their deposits. A consumer deposited $250 into Bank A. Bank A
loaned out some money, which were all deposited into Bank B. Bank B
loaned out some money, which were all deposited into Bank C.
Part a (10 points)
Construct the balance sheet for each bank. That is, fill out the
following tables...
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