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ECON 1BB3 Lecture Notes - Lecture 10: Bank Reserves, Reserve Requirement, Tim Hortons

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greendinosaur870
20 Sep 2016
School
McMaster University
Department
Economics
Course
ECON 1BB3
Professor
Bridget O' Shaughnessy

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ECON 1BB3 Full Course Notes
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Document Summary

I have ,000 in currency and there is no banking system. What is the current money supply: m = c+d = 50,000 + 0 = 50,000. Now i deposit my k into a bank. Which of the following has intrinsic value: a golden coin, a bill, a bank account, a personal cheque. Intrinsic uses other than the fact that we use it as money. B has never been true in canada, c is incorrect b/c can walk into a store using a gift card, only a is correct. Just b/c it says legal tender doesn"t mean its worth very much eg. zimbabwe money worth much less than usd. What makes it worth something is business" willingness to accept it as payment or in exchange for something more likely they"ll accept it if it says legal tender but not for sure. A would be correct if it said (b/c 10 is 5% of 200)

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Related Questions

(a.) Third National Bank is fully loaned up with reserves of$30,000 and demand deposits equal to $100,000. The reserve ratio is5%. Households deposit $20,000 in currency into the bank. How much excess reserves does the bank now have, and what is the maximum amount of new money that can be created in the banking system as a result of this deposit? Show all work.

(b.) What is the fed funds rate in the banking system? Explain how the Fed manipulates this rate to achieve macroeconomic objectives.

Fill in the following blanks:

The money supply consists of Currency + Checkable Deposits (NOT including currency in bank's vaults and NOT including banks' deposits at the Fed). Before the First National Bank made the $90 loan, no one outside the bank held any currency, and Checkable Deposits were equal to 100, so the money supply was equal to 0 + 100 = 100.

When the First National Bank made the loan, the borrower received $90 in cash, but checkable deposits did not fall. Thus, the money supply was equal to $ (..........)of currency in the hands of the non-bank public plus $(........) of Deposits, for a total of $(............).

While cleaning your apartment, you find a $50 bill under the sofa cushion. You deposit the $50 into your checking account. If the reserve requirement is 20%, what is the maximum amount that the money supply could ultimately increase? (Remember that the money supply is Currency + Deposits - and that the amount of Currency fell by $50 when you put the cash in the bank).

The change in currency would be (...............) and the maximum ultimate change in deposits would be at most(..............) , so the money supply would rise by at most(..........) .

Suppose you deposit the $50, but the bank chooses not to lend any of its excess reserves. By how much would the money supply ultimately increase in this case?

The change in currency would be (................) and the ultimate change in deposits would be(............) , so the money supply would rise by(...........) .

1. In a system of fractional-reserve banking, even without any action by the central bank, the money supply declines if households choose to hold (less, more) currency or if banks choose to hold (less, more) excess reserves.

2. If the Fed makes an open-market purchase of government bonds, it will (decrease, increase) the money supply. Whereas if there is an increase in the discount rate on Fed lending, it will (decrease, increase) the money supply.

3. Chloe takes $100 of currency from her wallet and deposits it into her checking account. If the bank adds the entire $100 to reserves, the money supply(decreases, doesn't change, increases), but if the bank lends out some of the $100, the money supply (decreases, doesn't change, increases).

4. If the reserve ratio is 0.25 and the central bank increases the quantity of reserves in the banking system by $120, the money supply increases by how much?