Economics 1022A/B Lecture Notes - Lecture 24: Demand Curve, Open Market Operation, Money Multiplier

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ECON 1022A/B Full Course Notes

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Or all notes and coins in circulation + all bank reserves. ** this is referred to as an open market operation. Money multiplier = change in the quantity of money/ change in the monetary base also = 1+c/d / c/d + r/d c/d= currency/deposits r/d= reserves/deposits. Example: suppose we have a bond with a value of that pays annual interest of . Suppose now that demand increases for this bond and the alue increase to and the interest remains at dolars. the interest rate is 5% Chapter 24 when the price of a bond goes up, and the interest rate goes down. Inverse relationship supply curve is how much the bank have to hold, demand curve is how much we want to hold. The quantity theory of money equation of exchange= py=mv p- price level y- real gdp m- quantity of money v- velocity.

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1) Imagine that Kristy deposits $10,000 of currency into her checking account deposit at Bank A and that the required reserve ratio is 20%. As a result of Kristy's deposit,

a) Bank A's reserves immediately increased by $______.

b) Bank A's required reserves increased by $______.

c) Bank A's excess reserves increased by $______.

d) Bank A can make a maximum new loan of $______.

e) Checking account deposits in the banking system as a whole (including the original deposit) could eventually increase up to a maximum of $______.

Assets	Liabilities
Reserves +$4000	Deposits +$4000

2) Refer to the table above. Suppose a transaction changes a bank's balance sheet as indicated in the T-account, and the required reserve ratio is 10 percent. As a result of the transaction, the bank has excess reserves of $______.

3) Suppose a bank has $100 million in checking account deposits with no excess reserves and the required reserve ratio is 20 percent. If the Federal Reserve reduces the required reserve ratio to 15 percent, then the bank will now have excess reserves of $______.

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Please with all the explanations and with a table/

Your bank has the following balance sheet:
Assets Liabilities

Reserves $ 50 million Checkable deposits $200 million
Securities 50 million
Loans 150 million Bank capital 50 million

If the required reserve ratio is 10%, what actions should the bank manager take if there is an unexpected deposit outflow of $50 million?

1) Suppose your bank has the following balance sheet:

Assets Liabilities

Reserves $ 50m Checkable deposits $200m

Securities 50m

Loans 150 m Bank capital 50m

Suppose the required reserve ratio is 10%. If there is an unexpected deposit outflow of $50 million how much does the bank need to get in order to maintain the required reserves? List all the possible options that bank could explore to maintain the reserve requirement. What is the most preferred option should you consider as the bank manager?

- If X-Bank reported an ROE of 12% and an ROA of 2%. What is the equity multiplier?

Economics 1022A/B Lecture Notes - Lecture 24: Demand Curve, Open Market Operation, Money Multiplier

ECON 1022A/B Full Course Notes

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