Question 1
The Bank of Cedan has the following balance sheet:
Bank of Cedan
Reserves $25,000 (Assets)
Deposits $150,000 (Liabilities)
Loans $125,000 (Assets)
- If the reserve requirement is 10 percent, how much is excess reserves?
Answer:
- Imagine that an additional $50,000 is deposited into the bank. Do total reserves have to increase? How will this affect excess reserves?
Answer:
- Given the original balance sheet above, if the reserve requirement is increased to 20 percent, what are the implications for this bank’s reserves?
Answer:
- Given the original balance sheet above, if the reserve requirement falls to 5 percent by how much would the economy’s money supply increase if the bank chooses to hold only required reserves?
Answer:
Question 2
State andillustrate (show which curve(s) shift and in which direction) what happens to the value of money, the price level and real interest rates using the money supply (MS) and money demand (MD) diagram shown below for each of the following situations.
- The Central Bank increases the reserve ratio in the fractional reserve banking system.
Answer:
- The Central Bank purchases government securities via Open Market Operations.
Answer:
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