Balance Sheet for Princeton Bank(amount in millions of dollars)
Assets---------------------Liabilities+capital
Reserve 30--------------Transactions 300
Securities 140-----------Deposit 0
Loans 280---------------Nontransacations 140
Total assets 450---------Deposits
Capital
Total liabilities+ Capital 450
Of Princeton Bank's reserves, $6million are required clearing balances held at the federal reserve bank of Philadelphia. Statistics for the economy as a whole are
D=$2,000 billion, R= $200 billion, C/D=0.2=ratio of nontransaction deposits to transaction deposits
N/D=2.0=ratio of non-transaction deposits to transaction deposits, MMF/D=1.6=ratio of retail money-market mutual funds to transaction deposits, Q=0.08=8%=required reserve ratio on transaction deposits=RR/D=ratio of the required reserve to transaction deposits, RCB/D=0.02=2%=ratio of required clearing balances to transaction deposits
C. Calculate the values of N, D, C, R, MMF, and RCB using the fact that C/D=0.2 and C+D=M1.
D. Suppose that the FED raises the reserve requirement on transaction deposit to 0.18=18%. What happens to Princeton Bank's balance Sheet? Does it has excess reserves or is it short of reserves? Calculate the new M1 and M2 multipliers. What happens to MB, M1,M2,N,D,C,MMF,RCB, and R?
E. Suppose that instead of raising the reserve requirement as in part C, the FED sells $150 billion of securities in the open market, including $30 million to a customer of Princeton Bank. What happens to Princeton Bank's balance sheet? Does it have an excess reserve, or is it short of reserves? Calculate the new M1, M2,N,D,C,MMF,RCB, and R?
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Balance Sheet for Princeton Bank(amount in millions of dollars)
Assets---------------------Liabilities+capital
Reserve 30--------------Transactions 300
Securities 140-----------Deposit 0
Loans 280---------------Nontransacations 140
Total assets 450---------Deposits
Capital
Total liabilities+ Capital 450
Of Princeton Bank's reserves, $6million are required clearing balances held at the federal reserve bank of Philadelphia. Statistics for the economy as a whole are
D=$2,000 billion, R= $200 billion, C/D=0.2=ratio of nontransaction deposits to transaction deposits
N/D=2.0=ratio of non-transaction deposits to transaction deposits, MMF/D=1.6=ratio of retail money-market mutual funds to transaction deposits, Q=0.08=8%=required reserve ratio on transaction deposits=RR/D=ratio of the required reserve to transaction deposits, RCB/D=0.02=2%=ratio of required clearing balances to transaction deposits
C. Calculate the values of N, D, C, R, MMF, and RCB using the fact that C/D=0.2 and C+D=M1.
D. Suppose that the FED raises the reserve requirement on transaction deposit to 0.18=18%. What happens to Princeton Bank's balance Sheet? Does it has excess reserves or is it short of reserves? Calculate the new M1 and M2 multipliers. What happens to MB, M1,M2,N,D,C,MMF,RCB, and R?
E. Suppose that instead of raising the reserve requirement as in part C, the FED sells $150 billion of securities in the open market, including $30 million to a customer of Princeton Bank. What happens to Princeton Bank's balance sheet? Does it have an excess reserve, or is it short of reserves? Calculate the new M1, M2,N,D,C,MMF,RCB, and R?
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