05 Jun Question 1. Calculate M1 and M2 using the following i
Question
1. Calculate M1 and M2 using the following information: Large-denomination time deposits 304 billion Currency and coin held by the non-banking public 438 billion Checkable deposits 509 billion Small-denomination time deposits 198 billion Traveler’s checks 18 billion Savings deposit 326 billion Money market mutual fund accounts 637 billion 2. Suppose that a bank’s customer deposits $4,000 in her checking account. The required reserve ratio is 0.25. What are the required reserves on this new deposit? What is the largest loan that the bank can make on the basis of the new deposit? If the bank chooses to hold reserves of $3,000 on the new deposit, what are the excess reserves on the deposit? 3. Suppose Bank A, which faces a reserve requirement of 10 percent, receives a $1,000 deposit from a customer. a. Assuming that it wishes to hold no excess reserves, determine how much the bank should lend. Show your answer on Bank A’s balance sheet b. Assuming that the loan shown in Bank A’s balance sheet is redeposited in Bank B, show the changes in Bank B’s balance sheet if it lends out the maximum possible. c. Repeat this process for three additional banks: C, D, and E. d. Using the simple money multiplier, calculate the total change in the money supply resulting from the $1,000 initial deposit. e. Assume Bank’s A, B, C, D and E each wish to hold 5 percent excess reserves. How would holding this level of excess reserves affect the total change in the money supply. 4. Show how each of the following would initially affect a bank’s assets and liabilities. a. Someone makes a $10,000 deposit into a checking account b. A bank makes a loan of $1,000 by establishing a checking account for $1,000 c. The loan descrived in part (b) is spent d. A bank must write off a loan because the borrow defaults 5. Show how each of the following initially affects bank assets, liabilities, and reserves. Do not include the results of bank behavior resulting from the Fed’s action. Assume a required reserve ratio of 0.05. a. The Fed purchases $10 million worth of US government bonds from a bank b. The Fed loans $5 million to a bank c. The Fed raises the required reserve ratio to 0.10.
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