16 May WHY DON’T BANKS HOLD 100 PERCENT RESERVES?
Macroeconomics Questions
100 words per answer
- Why don’t banks hold 100 percent reserves? How is the amount of reserves banks hold related to the amount of money the banking system creates?
- Bank A has a leverage ratio of 10, while Bank B has a leverage ratio of 20. Similar losses on bank loans at the two banks cause the value of their assets to fall by 7 percent. Which bank shows a larger change in bank capital? Does either bank remain solvent? Explain.
- In what sense is inflation like a tax? How does thinking about inflation as a tax help explain hyperinflation?
- According to the Fisher effect, how does an increase in the inflation rate affect the real interest rate and the nominal interest rate?
- Define net exports and net capital outflow. Explain how and why they are related.
- Explain the relationship among saving, investment, and net capital outflow.
- Why are budget deficits and trade deficits sometimes called the twin deficits?
- What is capital flight? When a country experiences capital flight, what is the effect on its interest rate and exchange rate?
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