CAS EC 102 Lecture 3: macro unit 3

89 views12 pages

plumdinosaur99

19 Dec 2017

School

Department

Course

Professor

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

crimsonantelope381 and 36670 others unlocked

CAS EC 102 Full Course Notes

Verified Note

6 documents

Document Summary

Reserves: vault cash, deposits with the fed. Deposits: savings deposits, checking deposits, bank capital, = a - l. Change in total deposits = initial deposits x 1/(r+e: where r = reserve requirement. Change in money supply = change in total deposits + change in cash held by the public. The money multiplier: change in total deposits = initial deposits x (1/r+e) Macro unit 3: change in money supply = change in total deposits + change in cash held by the public, example 1: Change in total deposits = initial deposits x (1/r+e: = ,000 x (1/. 1, = ,000 x 10, = ,000. Change in money supply = change in total deposits + change in cash held by the public: = ,000 + ( -,000, = ,000, example 2: Change in total deposits: = ,000 x (1/. 1+. 1, = ,000 x 5, = ,000. Change in money supply: = ,000 + (- ,000, = ,000.

Related Questions

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

Assume that the banking system has total reserves of $100 million. Assume also that the reserve requirement for checking deposits is 10 percent and that banks do not hold any excess reserves. There is also no currency held by households.

a) What is the money multiplier? What is the money supply?

b) If the FED raises required reserves to 20 percent of deposits, what are the change in reserves and the change in money supply?

c) Now suppose the FED lowers the requirement from 10 percent to 5 percent, but banks choose to hold another 5 percent of deposits as excess reserves. Why might banks do so? What is the overall change in the money multiplier and the money supply as a result of these actions?

d) If the FED sells $1 million of government bonds, what is the effect on the economy's reserves and money supply? Use 10 percent required reserve ratio.

e) If the FED buys $5 million of government bonds, what is the effect on the economy's reserves and money supply? Use 10 percent required reserve ratio.

crimsonbadger400

The balance sheet for First National Bank is shown below: Assets Liabilities Reserves $200 Deposits $1000 Loans $800 The reserve requirement is 10%. The money multiplier is 10. First National can (increase, decrease) the money supply. The amount First National Bank can change the money supply. $100 The potential increase in the money supply.

sangriahamster701

CAS EC 102 Lecture 3: macro unit 3

CAS EC 102 Full Course Notes

Document Summary

Get access

Related Documents

CAS EC 102 Lecture Notes - Lecture 30: L30, Monetary Policy, Money Multiplier

CAS EC 102 Lecture Notes - Lecture 28: Deposit Account, Money Supply, Nissan L Engine

CAS EC 102 Lecture Notes - Lecture 29: Bond Market, Federal Reserve Bank, Federal Reserve System

Related Questions