Question

1. For each case, determine the maximum quantity of money generated in the economy after all rounds of leading are completed. Show all your work.

1. Reserve requirement is 10% and excess reserves are $11 million

2. Reserve requirement is 5% and excess reserves are $13 million

3. Reserve requirement is 2 % and excess reserves are $7 million

2. Determine whether each of the following accounts is an asset or a liability to XYZ Bank.

       

1. Cash held in vaults: $ 32 million
2. Bonds: $ 18 million
3. Home loans: $ 2 million
4. Deposits: $ 42 million
5. Reserves: $ 20 million
6. Borrowings from other banks: $ 30 million

        3.  The Federal Reserve is headed by the ____________________ (Board of Governors/the President/Chair), consisting of ______ members appointed by ____________________ (Board of Governors/the President/Chair) and confirmed by                                (Board of Governors/the President/the Senate).

4.   List three components or purposes of bank regulation.

Answer 1

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Question:

Answer:

1). Answer:

Reserve requirement is 10% and excess reserves are $11 million

Here, excess reserve the excess amount of total deposit after deducting 10% as a reserve requirement. So $11 million is the 90% of total deposit. so, total deposit will be $12.22 million.

Quantity of money generated is depend upon the money multiplier.

Money Multiplier = 1/Reserve Ratio

= 1/10% = 10

so, Quantity of money generated=  $12.22 million * 10 = $122.2 million

Reserve requirement is 5% and excess reserves are $13 million.

Here, excess reserve the excess amount of total deposit after deducting 5% as a reserve requirement. So $13 million is the 95% of total deposit. so, total deposit will be $13.68 million.

Quantity of money generated is depend upon the money multiplier.

Money Multiplier = 1/Reserve Ratio

= 1/5% = 20

so, Quantity of money generated=$13.68 million * 20 = $273.6 million

Reserve requirement is 2 % and excess reserves are $7 million.

Here, excess reserve the excess amount of total deposit after deducting 2% as a reserve requirement. So $7 million is the 98% of total deposit. so, total deposit will be $7.14 million.

Quantity of money generated is depend upon the money multiplier.

Money Multiplier = 1/Reserve Ratio

= 1/2% = 50

so, Quantity of money generated=$7.14 million * 50 = $357 million

2). Answer:

2. Determine whether each of the following accounts is an asset or a liability to XYZ Bank.

a). Cash held in vaults: $ 32 million - Asset

b). Bonds: $ 18 million - Asset

c). Home loans: $ 2 million - Asset

d). Deposits: $ 42 million - Liability

e). Reserves: $ 20 million - Asset

f). Borrowings from other banks: $ 30 million - Liability

3). Answer:

The Federal Reserve is headed by the _Chair_, consisting of _ members appointed by _Board of Governors__and confirmed by the President.

  

4). Answer:

Question: List three components or purposes of bank regulation.

Answer: The main three components or purposes of bank regulation are: 1.  designed to create market transparency in the banking system, 2. Established a sound and stable banking system, and 3. Protecting customers interest.

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