Economics 1022A/B Lecture Notes - Lecture 8: Bank Reserves, Nominal Interest Rate, Loanable Funds

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silvercheetah671

4 Nov 2016

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ECON 1022A/B Full Course Notes

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Definition of money and its functions (medium of exchange; unit of account; store of value) Defintions of m1 and m2 [ m1=currency in circulation + all chequable accounts] (personal and non-personal) whereas m2 = m1 + all non-chequable deposits (personal and non-personal) + fixed term deposits] Typical balance sheet for banks (assets: reserves, loans to public, liquid assets, Typical balance sheet for bank of canada (assets: primarily govt bonds and. Liabilities: primarily reserve deposits of banks and currency) Definition of monetary base (mb = reserves + currency) How banks create" money (notion of actual reserves from balance sheet of. Bank of canada ; desired reserves and desired reserve ratio; and excess reserves the difference between actual reserves and desired reserves) The money market: the demand for money = p f(nominal r, real gdp, financial innovation) Shifts in the demand for money function (i. e. changes in real gdp and md) Equilibrium interest rates (where md = ms)

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INTRO - MACROECONOMICS - Money & Banking - & The Money Market and Monetary Policy

Answer the questions below from the data in the table (all figures are in billions of dollars).

Total currency issued by the Bank of Canada	$17
Total personal savings deposits	186
Total demand deposits	19
Deposits of government at the Bank of Canada	3
Currency held by commercial banks	3
Government bonds owned by the public	96
Nonpersonal term deposits (certificates of deposit)	41

a. Total currency in circulation is $ _____ billion.

b. How much larger is M1 than the total currency in circulation?

M1 is larger than the total currency by $ _____ billion.

c. How much larger is M2 than M1?

M2 is larger than M1 by $ _____ billion.

Please provide an explanation as you solve this question.

d. How much larger is M3 than M2?

M3 is larger than M2 by $ _____billion.

ultramarinehornet16

Balance Sheet for Princeton Bank(amount in millions of dollars)
Assets---------------------Liabilities+capital
Reserve 30--------------Transactions 300
Securities 140-----------Deposit 0
Loans 280---------------Nontransacations 140
Total assets 450---------Deposits
Capital
Total liabilities+ Capital 450
Of Princeton Bank's reserves, $6million are required clearing balances held at the federal reserve bank of Philadelphia. Statistics for the economy as a whole are
D=$2,000 billion, R= $200 billion, C/D=0.2=ratio of nontransaction deposits to transaction deposits
N/D=2.0=ratio of non-transaction deposits to transaction deposits, MMF/D=1.6=ratio of retail money-market mutual funds to transaction deposits, Q=0.08=8%=required reserve ratio on transaction deposits=RR/D=ratio of the required reserve to transaction deposits, RCB/D=0.02=2%=ratio of required clearing balances to transaction deposits

C. Calculate the values of N, D, C, R, MMF, and RCB using the fact that C/D=0.2 and C+D=M1.
D. Suppose that the FED raises the reserve requirement on transaction deposit to 0.18=18%. What happens to Princeton Bank's balance Sheet? Does it has excess reserves or is it short of reserves? Calculate the new M1 and M2 multipliers. What happens to MB, M1,M2,N,D,C,MMF,RCB, and R?
E. Suppose that instead of raising the reserve requirement as in part C, the FED sells $150 billion of securities in the open market, including $30 million to a customer of Princeton Bank. What happens to Princeton Bank's balance sheet? Does it have an excess reserve, or is it short of reserves? Calculate the new M1, M2,N,D,C,MMF,RCB, and R?
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sangriatermite288

For the next six questions, consider an economy with only two non-identical banks, called Bank One and Bank Two. In addition to this information, members of the public in this economy hold $6000 in cash, and there are no travelers' checks.

Partial balance sheet information for each bank is given below:

Bank One

Cash in bank $3500

Equity (net worth) $2150

US government bonds $1650

Total savings deposits $14,000

Deposit in the Federal Reserve $5000

Total checking deposits $54,000

Bank Two: US government bonds $950

Total checking deposits $46,000

Cash in bank $2000

Deposit in the Fed $4000

Equity $1850

Total savings deposits $11,000

Questions.... ( rr= 10% or .1)

1.) Economys monetary base combining actual and potential reserves?

2.) Money supply using simplified definition?

3.) Bank two required reserves?

4.) desired excess reserves ratio?

ochreleopard420

Economics 1022A/B Lecture Notes - Lecture 8: Bank Reserves, Nominal Interest Rate, Loanable Funds

ECON 1022A/B Full Course Notes

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