Questionnbsp the table shows a banks balance sheet the

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Reference no: EM13372443

Question:

The table shows a bank's balance sheet. The desired reserve ratio on all deposits is 5 per cent.

Assets		Liabilities
(millions of dollars)
Reserves at RBA	25	Current deposits	90
Cash in vault	15	Saving deposits	110
Securities	60
Loans	100

(a) What, if any, are the bank's excess reserves? How much will the bank loan? If there is no currency drain, what are the bank's excess reserves, if any, after it has made the first loan?

(b) If there is no currency drain, what is the quantity of loans and total deposits when the bank has no excess reserves?

(c) Suppose that the currency drain ratio is 10 per cent of deposits and the desired reserve ratio is 1 per cent. If the Reserve Bank sells $100,000 of securities on the open market, calculate excess reserves after the first round. Calculate the money multiplier.

Using graphs, explain the change in the nominal interest rate in the short run if

(d) Real GDP increases.

(e) The money supply increases.

(f) The price level rises.

Reference no: EM13372443

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