Question

In: Economics

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 of loan that the bank can make if the borrower decides to withdraw $100.

(d) What is the money multiplier?

Expert Solution

1 - Required reserve = 500*10 %

= $ 50

Excess reserve = 500-50

= $ 450

The bank will be able to lend $ 450 as loans. Only the amount of excess reserve can be given as loans

2 - The bank can make a loan of 500-50

= $ 450 .

3 - When customer withdraws the amount

Remaining amount = 400

Required reserve = 40

Maximum loan bank can make now = 400-40

= $ 360

4 - Money multiplier = 1/ reserve ratio

= 1/0.10

= 10.

Rahul Sunny answered 2 years ago

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...

Suppose we live in a country that produces two goods.The first good is a composite of...

Suppose we live in a country that produces two goods.The first good is a composite of everything people need and want (e.g.,water, food, shelter, clothing, technology, transportation, education,news, entertainment, public safety, and other services). The second good is healthcare and every thing related to it. Use the PPF tool and the concept of technical and allocative efficiency to determineand discuss where this country stands in the production of health- related goods and services.Use some real- world data (e.g., gross domestic...

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...

Answer. Since we live in a society that protects religious identity(in the First Amendment), is it...

Answer. Since we live in a society that protects religious identity(in the First Amendment), is it ever appropriate to restrict a persons (or group's) religious freedom? You may take your response in whatever direction you wish, as long as you are focused on this idea. For example, when under what circumstances, would you be comfortable restricting religious freedom? Are there certain actions, or practices (e.g. rituals etc.) that you think should be restricted? should religious people be allowed convictions in...

Suppose you are the governor of the Bank of Canada and the economy is experiencing a...

Suppose you are the governor of the Bank of Canada and the economy is experiencing a sharp rise in the inflation rate. What actions would you take in: a. open-market operations sell bonds buy bonds make advances to the chartered banks change the overnight lending rate b. the bank rate raise the rate lower the rate set the rate at the lower bound of the Bank of Canada's operating band for the overnight lending rate set the rate lower than...

needs an explaination for Bank statement , how it is calculated and how we maintain customer...

needs an explaination for Bank statement , how it is calculated and how we maintain customer bank account debit/credit

Suppose you live in a small open economy with flexible prices and a flexible exchange rate....

Suppose you live in a small open economy with flexible prices and a flexible exchange rate. A) Suppose that the world interest rate rises. What is the effect of this change on the exchange rate and investment? B) The citizens of your country like to travel abroad. Would the change in the world interest rates affect their cost of spending abroad? C) Suppose that the introduction of more cash machines (in domestic) reduces demand for money (in domestic). Explain how...

Question 2: Consider an economy with a single bank called the National Bank. Suppose the National...

Question 2: Consider an economy with a single bank called the National Bank. Suppose the National Bank has $500 in bank capital. Then assume the National Bank receives $1000 in deposits. It keeps 10 percent as reserves and loans the rest. a) Show a T-account for the National Bank. b) Calculate the leverage ratio. c) Now suppose 20 percent of the borrowers defaulted. Can you show the new T-account? d) What is the percentage decline in bank capital? What is...

Suppose that the central bank in this economy is concerned that inflation is too high and...

Suppose that the central bank in this economy is concerned that inflation is too high and wants to lower the inflation rate by 6 percentage points per year. A reduction in the rate of inflation is known as d sinflation . To reduce inflation from 8% to 2% in the short run, the central bank would have to accept an unemployment rate of ____________ . True or False: If people have rational expectations, the economy may not have to endure...

Suppose you are the governor of the Bank of Canada. The economy is experiencing a sharp...

Suppose you are the governor of the Bank of Canada. The economy is experiencing a sharp rise in the inflation rate. What changes would you consider in: a) Open-market operations b) The bank rate c) Explain in each case how the change you advocate would affect chartered bank cash reserves and influence the money supply? Elaborate your ideas with hypothetical examples related to any Canadian charted bank? d) Distinguish between the overnight lending rate and the prime interest rate....