7. (Question 7 has two parts)
Part 1 of Question 7 (10 points)
Below is the Balance Sheet for the Bank of Upland as of October 1, 2007. The required reserve ratio is 2%. Using this information and the Balance Sheet below answer the following questions.
Bank of Upland
Assets Liabilities
$50 million Vault Cash $300 million Demand Deposits
$130 million Treasury Bonds
$45 million Car Loans
$10 million Business Loans
$30 million Credit Card Loans
$10 million On Deposit at the Fed
$25 million in Mortgages
$300 million Total Assets $300 million Total Liabilities
(a) Calculate the Bank of Uplandâs Total Reserves as of October 1, 2007 (please show/explain how you got your answer).
b) Calculate the Bank of Uplandâs Required Reserves as of October 1, 2007 (please show/explain how you got your answer).
c) Calculate the Bank of Uplandâs Excess Reserves as of October 1, 2007 (please show/explain how you got your answer).
d) Determine the amount of Bank of Uplandâs Total Reserves which can legally be loaned out as of October 1, 2007 (please show/explain how you got your answer).
e) Calculate the Bank of Uplandâs Money Creating Potential throughout the entire Banking System as of October 1, 2007 (please show/explain how you got your answer).
Part 2 of Question 7 (15 points)
Start with the same Balance Sheet and required reserve ratio found in Part 1 above, and using the fact that the Federal Reserve had just sold $50 million worth of Treasury Bonds (T-bonds) to the Bank of Upland at the end of business on October 1, 2007 (no other transaction occurred at the Bank of Upland on October 1, 2007), answer the following questions.
a) Fill in the Bank of Uplandâs Balance Sheet numbers as of the start of business on October 2, 2007 for the categories found below. Start with the numbers in Part 1 above and incorporate the fact that the Federal Reserve (using Open Market Operations) had just sold $50 million worth of Treasury Bonds (T-bonds) to the Bank of Upland. Using a Word Table might help.
Bank of Upland
Vault Cash Demand Deposits
Treasury Bonds
Car Loans
Business Loans
Credit Card Loans
On Deposit at the Fed
in Mortgages
Total Assets Total Liabilities
b) Calculate the Bank of Uplandâs Total Reserves as of October 2, 2007 (please show/explain how you got your answer).
c) Calculate the Bank of Uplandâs Required Reserves as of October 2, 2007 (please show/explain how you got your answer).
d) Calculate the Bank of Uplandâs Excess Reserves as of October 2, 2007 (please show/explain how you got your answer).
e) Calculate the Bank of Uplandâs Money Creating Potential throughout the entire Banking System as of October 2, 2007 (please show/explain how you got your answer).
f) Explain the reason the Federal Reserve would BUY these T-bonds from the Bank of Upland and explain what the Federal Reserve is worried about. (In other words, what economic condition is the Fed trying to avoid and how would the bond purchase help the Fed to avoid this economic condition.) You must use numbers to support your answer to receive credit.
g) Explain how the Fed would use two other monetary tools to help support its Open Market Purchase above. Explain how these tools would be used and how they would have an impact on the Marcoeconomy.
7. (Question 7 has two parts)
Part 1 of Question 7 (10 points)
Below is the Balance Sheet for the Bank of Upland as of October 1, 2007. The required reserve ratio is 2%. Using this information and the Balance Sheet below answer the following questions.
Bank of Upland
Assets Liabilities
$50 million Vault Cash $300 million Demand Deposits
$130 million Treasury Bonds
$45 million Car Loans
$10 million Business Loans
$30 million Credit Card Loans
$10 million On Deposit at the Fed
$25 million in Mortgages
$300 million Total Assets $300 million Total Liabilities
(a) Calculate the Bank of Uplandâs Total Reserves as of October 1, 2007 (please show/explain how you got your answer).
b) Calculate the Bank of Uplandâs Required Reserves as of October 1, 2007 (please show/explain how you got your answer).
c) Calculate the Bank of Uplandâs Excess Reserves as of October 1, 2007 (please show/explain how you got your answer).
d) Determine the amount of Bank of Uplandâs Total Reserves which can legally be loaned out as of October 1, 2007 (please show/explain how you got your answer).
e) Calculate the Bank of Uplandâs Money Creating Potential throughout the entire Banking System as of October 1, 2007 (please show/explain how you got your answer).
Part 2 of Question 7 (15 points)
Start with the same Balance Sheet and required reserve ratio found in Part 1 above, and using the fact that the Federal Reserve had just sold $50 million worth of Treasury Bonds (T-bonds) to the Bank of Upland at the end of business on October 1, 2007 (no other transaction occurred at the Bank of Upland on October 1, 2007), answer the following questions.
a) Fill in the Bank of Uplandâs Balance Sheet numbers as of the start of business on October 2, 2007 for the categories found below. Start with the numbers in Part 1 above and incorporate the fact that the Federal Reserve (using Open Market Operations) had just sold $50 million worth of Treasury Bonds (T-bonds) to the Bank of Upland. Using a Word Table might help.
Bank of Upland
Vault Cash Demand Deposits
Treasury Bonds
Car Loans
Business Loans
Credit Card Loans
On Deposit at the Fed
in Mortgages
Total Assets Total Liabilities
b) Calculate the Bank of Uplandâs Total Reserves as of October 2, 2007 (please show/explain how you got your answer).
c) Calculate the Bank of Uplandâs Required Reserves as of October 2, 2007 (please show/explain how you got your answer).
d) Calculate the Bank of Uplandâs Excess Reserves as of October 2, 2007 (please show/explain how you got your answer).
e) Calculate the Bank of Uplandâs Money Creating Potential throughout the entire Banking System as of October 2, 2007 (please show/explain how you got your answer).
f) Explain the reason the Federal Reserve would BUY these T-bonds from the Bank of Upland and explain what the Federal Reserve is worried about. (In other words, what economic condition is the Fed trying to avoid and how would the bond purchase help the Fed to avoid this economic condition.) You must use numbers to support your answer to receive credit.
g) Explain how the Fed would use two other monetary tools to help support its Open Market Purchase above. Explain how these tools would be used and how they would have an impact on the Marcoeconomy.
