Calculate the amount of required reserves

Assignment Help Microeconomics

Reference no: EM131777701

Question: (1) Banks do not hold any excess reserves. Any excess reserves is used to make real estate loans

(2) Households do not hold any currency. All funds that are received are deposited. Suppose the Bank of Florida only liabilities are checkable deposits and it has only 2 assets: required reserves and loans. The balance sheet for the Bank of Florida is illustrated below.

Balance Sheet: Bank of Florida

Assets

Liabilities

Required Reserves: __________

Loans: $750 million

Checkable Deposits: $1000 million

(a) Calculate the amount of required reserves (RR) and the required reserve ratio (rr).

(b) Suppose that the Fed makes an open-market purchase of $10 million by buying $10 million worth of government securities from Mr. Gates. The Fed pays Mr. Gates with a $10 million check, which Mr. Gates takes to his bank, the Bank of Florida and deposits into his checking account. Assume the required reserve ratio is the ratio calculated from Part (a). Illustrate this transaction using a T-account for the Bank of Florida.

(c) Suppose that the Bank of Florida lends out the funds found in Part(b) to Fred who uses the proceeds to purchase the Pensacola Blue Wahoos (a minor-league baseball team) from Mr. Khan. Mr. Khan deposits the proceeds into his checking account at the Bank of Tennessee. Assume the required reserve ratio is the ratio calculated from Part (a). Illustrate this transaction using a T-account for the Bank of Tennessee.

(d) Suppose that the Bank of Tennessee lends out the funds found in Part (c) to Daisy who uses the proceeds to purchase a car that was once owned by Elvis from the Graceland Estate. The Graceland Estate deposits the proceeds into its checking account at the Bank of Memphis. Assume the required reserve ratio is the ratio calculated from Part (a). Illustrate this transaction using a T-account for the Bank of Memphis.

(e) What is the total change in the money supply as a result of the open-market purchase of $10 million by the Federal Reserve?

Reference no: EM131777701

Questions Cloud

How do governments implement protectionist policies : Discuss how protectionism distorts supply/demand equilibria. How do governments implement protectionist policies?

What done to strengthen inter-organizational coordination : What could be done to strengthen inter-organizational coordination, both vertically and horizontally, based on the information obtained from lectures.

Write a comprehensive paragraph about a topic : Write a comprehensive paragraph about a topic of your choosing on each of the three texts. So, there will be a total of three paragraphs.

Average per unit monthly rental rate : The buyer believes that the average per unit monthly rental rate ($500) is below market and can be increased.

Calculate the amount of required reserves : Households do not hold any currency. All funds that are received are deposited. Suppose the Bank of Florida only liabilities are checkable deposits.

Describe the strengths in inter-organizational coordination : Describe the Strengths and weaknesses in inter-organizational coordination. What could be done to strengthen inter-organizational coordination?

Capability to produce the good or service : What are the benefits and costs to society when well-established firms like Firebird outsource when they clearly have capability to produce the good or service?

Computing the number of employed people : Suppose that the number of employed people is 6 and the number of unemployed people is 4 so that the size of the labor force is 10.

How protectionism distorts supply-demand equilibrium : Discuss how protectionism distorts supply/demand equilibrium. How do governments around the world implement protectionist policies?

User Account

All Pages