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You purchase computer software from a company in Chicago, Illinois that banks with Wells Fargo. You write a check on your Bank of America account in Tallahassee, Florida for $175.00 to pay for the transaction. Which statement below is accurate with regard to the impact on both banks' balance sheets?

  a.

Wells Fargo gains $175 in deposits and cash; Bank of America loses $175 in deposits and cash.
  b.

Wells Fargo gains $175 in deposits and reserves; Bank of America loses $175 in deposits and reserves.
  c.

Wells Fargo loses $175 in deposits and reserves; Bank of America gains $175 in deposits and reserves.
  d.

Wells Fargo gains $175 in deposits and loses $175 in reserves; Bank of America loses $175 in deposits and gains $175 in reserves.
  e.

Since the transaction is for $175 for each bank, there is no change in deposits or reserves.

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Kristelle Balando
Kristelle BalandoLv10
28 Sep 2019
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Related questions

Suppose that JP Morgan Chase sells a $100 million Treasury bill to the US Federal Reserve. Show the immediate impact of this transaction on the balance sheet of the Fed and the balance sheet of JP Morgan Chase. Note: Write out your answer in terms of the change in the balance sheet due to this transaction, as discussed in class. b.Assume that before selling the T-bill, JP Morgan Chase had no excess reserves. Suppose that the required reserve ratio is 20%. Also, assume that JP Morgan Chase makes the maximum loan it can from the funds acquired by selling the T-bills. Show the effect of this transaction by listing the change in the balance sheet. Note that you are now looking at the change in the balance sheet after making the loan has been made. c.Now suppose that whoever took out the loan in part b) writes a check for this amount and that the person receiving the check deposits it in Wells Fargo Bank. Show the effect of these transactions on the balance sheets of JP Morgan Chase and Wells Fargo after the check has been cleared.




1. which of the following would be counted as gross domestic

investment?


  • GM issues 1 million shares of stock



  • consolidated construction purchases 1,000 acres of land for a


regional shopping center it plans to build in a few years.


  • a walmart store adds 1,000 T-shirts to ti's


inverotry


  • A college buys computers for it's office staff



  • you and your significant other buy a house



  • you put money into a saving accountÂ









2. a car company currently has a capital stock of $100 million

and desires a capital stock of $110 million


a. if it experiences no depreciation how mch will it need to

invest to get to its desired level of capital stock

b. if its annual depreciation is 5% how much will it need to

invest to get to its desired level

c. if its annual depreciation is 10% how much will it need to

invest to get to its desired level









3. use the information below to compute the levels of gross and

net private domestic investment data are in billions of dollars

a. change in business inventories $59.3

b. residental cinstruction 369.6

c. producers durable equipment 691.3

d. nonresidential structures 246.9

e. depreciation 713.9



4. complete the table which shows investment in the united

states in billions of 2000 chained dollars


year 2005 gross domestic investment 1,873.5 depreciation 1,266.6 net private domestic investment ?

year 2006 gross domestic investnment ? depreciation 1,2161 net priavte domestic investment 696.4

year 2007 gross domestic investment 1,809.7 depreciation ? net priavate domestic investment 546.7










5. which of the following is part of M1 and M2

a. $0.27 that has accumulated under a couch cushion

b. your $2,000 line of credit with your visa account

c. $210 balance in your checking account

d. $417 in your savings account

e. 10 shares of the recently issued facebook stock that your

grandma gave you

f. $200 in travelers checks you purchased before your summer

trip to italy









6. suppose a banks balance sheet looks as follows:



assets


reservers

$2,700




property

$ 4,500


liabilities

deposits $7,200


and banks the reserve requirement is 20 percent

a. how much is excess reserves ratio 20 percent

b. how much can this bank lend






7. suppose a bank A with 25% reserve requirement has $50 million

in reserves and $200 million in checkable deposits one of the banks

depositors a major corporation writes a check to another

corporation for $5 million the check is deposited in another bank

(bank B)

a. explain how the withdrawl affects the banks reserves and

checkable deposits

b. by how much must bank A have to reduce lending?






8. assume the bank of america has access reserves of $30

milllion and outstanding transaction (checking) deposits of $180

million if the reserve ratio is 10% what is the size of the bank of

america total reserves?






9 banks fail when all depositors try to withdraw money at the

same time one way to prevent this problem would be to require bank

to hold 0 of deposits on hand

a. why would this not be desirable thing to do

b. what would happen to the banking system

c. explain how the law which requires banks to purchase fdic

insurance makes 100% reserve system unnecessary.



7. (Question 7 has two parts)
Part 1 of Question 7 (10 points)
Below is the Balance Sheet for the Bank of Upland as of October 1, 2007. The required reserve ratio is 2%. Using this information and the Balance Sheet below answer the following questions.
Bank of Upland
Assets Liabilities
$50 million Vault Cash $300 million Demand Deposits
$130 million Treasury Bonds
$45 million Car Loans
$10 million Business Loans
$30 million Credit Card Loans
$10 million On Deposit at the Fed
$25 million in Mortgages

$300 million Total Assets $300 million Total Liabilities


(a) Calculate the Bank of Upland’s Total Reserves as of October 1, 2007 (please show/explain how you got your answer).

b) Calculate the Bank of Upland’s Required Reserves as of October 1, 2007 (please show/explain how you got your answer).


c) Calculate the Bank of Upland’s Excess Reserves as of October 1, 2007 (please show/explain how you got your answer).

d) Determine the amount of Bank of Upland’s Total Reserves which can legally be loaned out as of October 1, 2007 (please show/explain how you got your answer).


e) Calculate the Bank of Upland’s Money Creating Potential throughout the entire Banking System as of October 1, 2007 (please show/explain how you got your answer).




Part 2 of Question 7 (15 points)

Start with the same Balance Sheet and required reserve ratio found in Part 1 above, and using the fact that the Federal Reserve had just sold $50 million worth of Treasury Bonds (T-bonds) to the Bank of Upland at the end of business on October 1, 2007 (no other transaction occurred at the Bank of Upland on October 1, 2007), answer the following questions.

a) Fill in the Bank of Upland’s Balance Sheet numbers as of the start of business on October 2, 2007 for the categories found below. Start with the numbers in Part 1 above and incorporate the fact that the Federal Reserve (using Open Market Operations) had just sold $50 million worth of Treasury Bonds (T-bonds) to the Bank of Upland. Using a Word Table might help.

Bank of Upland
Vault Cash Demand Deposits
Treasury Bonds
Car Loans
Business Loans
Credit Card Loans
On Deposit at the Fed
in Mortgages

Total Assets Total Liabilities


b) Calculate the Bank of Upland’s Total Reserves as of October 2, 2007 (please show/explain how you got your answer).

c) Calculate the Bank of Upland’s Required Reserves as of October 2, 2007 (please show/explain how you got your answer).

d) Calculate the Bank of Upland’s Excess Reserves as of October 2, 2007 (please show/explain how you got your answer).



e) Calculate the Bank of Upland’s Money Creating Potential throughout the entire Banking System as of October 2, 2007 (please show/explain how you got your answer).


f) Explain the reason the Federal Reserve would BUY these T-bonds from the Bank of Upland and explain what the Federal Reserve is worried about. (In other words, what economic condition is the Fed trying to avoid and how would the bond purchase help the Fed to avoid this economic condition.) You must use numbers to support your answer to receive credit.

g) Explain how the Fed would use two other monetary tools to help support its Open Market Purchase above. Explain how these tools would be used and how they would have an impact on the Marcoeconomy.

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