Suppose a banking system with the following balance sheet has no excess reserves. Assume that banks will make loans in the full amount of any excess reserves that they acquire and will immediately be able to eliminate loans from their portfolio to cover inadequate reserves.

 

Assets (in Billions)    Liabilities (in Billions)

  Total reserves $30   Transactions accounts $400

Securities  190 

 Loans  180 

Total $400                   Total$400 

 

(a) What is the reserve requirement?

 

Instructions: Enter your response as a percent rounded to one decimal place.

 

%

 

(b) Suppose the reserve requirement is changed to 5 percent. Reconstruct the balance sheet of the total banking system after all banks have fully utilized their lending capacity.

 

Instructions: Enter your responses as a whole number.

 

 

Assets (in Billions)       Liabilities (in Billions)

Total reserves $__                 Transactions accounts$   __

                                Securities   ___

                                Loans   ___   

                               Total$          ___                                     Total $ ___

(c) By how much has the money supply changed as a result of the lower reserve requirement (step b)?

 

$ billion

 

(d) Suppose the Fed now buys $10 billion of securities directly from the banks. What will the banks’ books look like after this purchase but before the banks make any additional loans?

 

Instructions: Enter your responses as a whole number.

 

 Assets (in Billions)              Liabilities (in Billions)

  Total reserves $____                  Transactions accounts$  ____

 Securities    _____

 Loans      _____

Total$           ____                            Total$ ____

 

Instructions: Enter your responses as a whole number.

 

(e) How much excess reserves do the banks have now?

 

$ billion

 

(f) By how much can the money supply now increase?

 

$ billion

 

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Status NEW Posted 05 Jun 2017 06:06 AM My Price 9.00

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