Question

Please be sure you ANSWER ALL PARTS OF EACH QUESTION. Thanks

INSERT YOUR ANSWERS UNDER EACH QUESTION – FIVE LINES MAXIMUM

1. According to the Congressional Budget Office the Trump administration’s recent tax cuts will create budget deficits of $1,000 Billion ($1 Trillion). Explain how this deficit will be “financed” or paid for. Be specific.

3. Describe how a bank’s excess reserves are calculated and describe their importance, if any, to the individual bank.

Answer 1

1.BUDGET DEFICIT :- Excess of spending over income for a government, corporation, or individual over a particular period of time. A budget deficit accumulated by the federal government of the United States must be financed by the issuance of Treasury Bonds. A Treasury bond (T-bond) is a marketable, fixed-interest U.S. government debt security with a maturity of more than 10 years. Treasury bonds make interest payments semi-annually, and the income received is only taxed at the federal level. Treasury bonds are known in the market as primarily risk-free; they are issued by the U.S. government with very little risk of default.In the fixed-income market, Treasury bond yields help to form the yield curve, which includes the full range of investments offered by the U.S. government.

2.Excess reserves are capital reserves held by a bank or financial institution in excess of what is required by regulators, creditors or internal controls. For commercial banks, excess reserves are measured against standard reserve requirement amounts set by central banking authorities. These required reserve ratios set the minimum liquid deposits (such as cash) that must be in reserve at a bank; more is considered excess.

• Excess reserves is calculated by this formula:-

  Excess Reserves = Reserves - Required Reserves.

• Excess reserves importance is that it is used to prevent financial crisis. for example Since the financial crisis, American banks have increased their excess reserves, that is, the cash funds they hold over and above the Federal Reserve’s requirements.