ECON 1BB3 Lecture 18: LECTURE 18

41 views3 pages

graybeetle998

17 Sep 2017

School

McMaster University

Department

Economics

Course

ECON 1BB3

Professor

Bridget O' Shaughnessy

For unlimited access to Class Notes, a Class+ subscription is required.

adrianagreen0110 and 39672 others unlocked

ECON 1BB3 Full Course Notes

Verified Note

11 documents

Document Summary

Reserve ratio: the fraction of total deposits that a bank holds as reserves. Banks assets are its reserves which is the cash it has in the teller drawers, bank vaults and atms, loans are assets. From perspective of a bank the deposits are liabilities ; reverse for households. What happens after all adjustments are taken place: an initial deposit of leads to an actually bigger increase in deposits in the banking system as a whole. Money multiplier: the amount of deposits the banking system generates with each dollar of reserves: money multiplier= 1/reserve ratio, multiply initial amount deposited by money multiplier and you get the amount of total deposits. Ba(cid:374)k of ca(cid:374)ada"s is ca(cid:374)ada"s (cid:272)e(cid:374)t(cid:396)al (cid:271)a(cid:374)k: bank of england, the central bank of the islamic republic or iran, bank of japan, board of governors of the federal reserve system. The bank of canada has four main areas of responsibility: monetary policy- controls the money supply.

Related Questions

6. The purpose of this exercise is to illustrate the multiple expansion of bank deposits in a fractional- reserve banking system. Assume the Fedâs legal reserve requirement is 10%

(Formula)

1. a. Required reserves = Required reserve ratio Â´ checkable deposits

b. Actual reserves = Required reserves + excess reserves

The consolidated balance sheet of the U.S. banking system indicates:

Assets Liabilities

Reserves $40,000 Checkable deposits $100,000

a. The simple money multiplier equals _______________. Formula:

b. The banking system has excess reserves of $_______________.

Formula (write out formula #1a):

Formula (write out formula #1b):

c. Loans and the money supply can be expanded by a maximum of $_______________.

mauvefox989

Consider the following simplified balance sheet of a commercial bank:

ASSETS and LIABILITIES

Vault cash $200

Deposits $3500

Deposits at the Federal Reserve $300

Loans $3000

1.The required reserve ratio is 10 percent.

Find Actual Reserves $....... , Required Reserves $..... , and Excess Reserves $ ......

2. By how much can this bank increase its loans? $........

3. What is the money (deposit) multiplier equal to?.........

4. By how much can the entire banking system expand their loans? $ .......

5. How much new wealth is directly created from this expansion of deposits?

periwinklefly569

Assets	Liabilities
Reserves $2,000	Deposits $10,000
Loans 8,000

Refer to Table.

Starting from the situation as depicted by the T-account, if someone deposits $500 into the First Bank of Fairfield, and if the bank makes new loans to keep its reserve ratio unchanged, then the number of new loans that it makes will be $320.

$400.
$680.
$750.

2.
Bank of Springfield

Assets		Liabilities
Reserves	$19,200	Deposits	$240,000
Loans	228,000

1. If the Bank of Springfield has lent out all the money it can given its level of deposits, then what is the reserve requirement?

5.00 per cent
8.00 per cent
8.42 per cent
95.00 per cent

2. Mia puts money into a piggy bank so she can spend it later. What function of money does this illustrate?

store of value
medium of exchange
unit of account
None of the above is correct.

3. Under a fractional-reserve banking system, banks

hold more reserves than deposits.
generally lend out a majority of the funds deposited.
cause the money supply to fall by lending out reserves.
All of the above are correct.

4. Over one-time horizon or another, Fed policy decisions influence

inflation and employment.
inflation but not employment.
employment but not inflation.
neither inflation nor employment.

5. If a bank desires to hold no excess reserves, the reserve requirement is 5 per cent, and it receives a new deposit of $1,000

its required reserves increase by $50.
its total reserves initially increase by $1,000.
it will be able to make a new loan of up to $950.
All of the above are correct.

blushkoala783

ECON 1BB3 Lecture 18: LECTURE 18

ECON 1BB3 Full Course Notes

Document Summary

Get access

Related Documents

ECON 1BB3 Chapter Notes - Chapter 23: Fractional-Reserve Banking, Reserve Requirement, Excess Reserves

ECON 1BB3 Lecture Notes - Fractional-Reserve Banking, Debit Card, Commodity Money

ECON 1BB3 Chapter Notes - Chapter 10-13: Nominal Interest Rate, Real Interest Rate, Seigniorage

Related Questions