Exhibit Chapter 13-1 Bank Increase in Checkable Deposits New Required Reserves N
ID: 1112747 • Letter: E
Question
Exhibit Chapter 13-1
Bank
Increase in Checkable Deposits
New Required Reserves
New Checkable Deposits Created by Extending New Loans
A
$0
$0
$1,000
B
$1,000
(A)
(B)
C
(C)
$90
(D)
D
$810
(E)
(F)
M
M
M
M
Totals —————————————————————————> (G)
Assume that the required reserve ratio is 10%, that there are no cash leakages, and that banks hold zero excess reserves.
Refer to Exhibit 13-1 to answer questions 1 – 5:
1. Suppose that the Federal Reserve conducts open market operations by purchasing $1,000 worth of government securities from Bank A. As a result, Bank A finds itself with $1,000 in excess reserves that it lends out and those funds end up in Bank B. What dollar value goes in blanks (A) and (B), respectively?
2. Suppose that the Federal Reserve conducts open market operations by purchasing $1,000 worth of government securities from Bank A. As a result, Bank A finds itself with $1,000 in excess reserves that it lends out and those funds end up in Bank B. The loan made by Bank B ends up in Bank C. What dollar value goes in blanks (C) and (D), respectively?
3. Suppose that the Federal Reserve conducts open market operations by purchasing $1,000 worth of government securities from Bank A. As a result, Bank A finds itself with $1,000 in excess reserves that it lends out and those funds end up in Bank B. The loan made by Bank B ends up in Bank C, and the loan made by bank C ends up in Bank D. What dollar value goes in blanks (E) and (F), respectively?
4. Suppose that the Federal Reserve conducts open market operations by purchasing $1,000 worth of government securities from Bank A. At the end of this process of money creation depicted in the exhibit, what is the total amount of new checkable deposits, blank (G)?
5. The Federal Reserve conducts open market operations by purchasing $1,000 worth of government securities from Bank A. At the end of the process of money creation depicted in the exhibit, what equation would be used to determine the total amount of new checkable deposits, blank (G)?
6. Suppose that the Fed undertakes an open market purchase of $1 million worth of securities from a bank. If the required reserve ratio is 9%, what is the resulting change in checkable deposits (or the money supply), assuming that there are no cash leakages and that banks hold zero excess reserves?
7. Suppose that the Fed undertakes an open market sale, selling $1 million worth of securities to a bank. If the required reserve ratio is 8%, checkable deposits (or the money supply), would _______________ by ________________ million, assuming that there are no cash leakages and that banks hold zero excess reserves.
8. Suppose that the Fed undertakes an open market sale, selling $3 million worth of securities to a bank. If the required reserve ratio is 11%, checkable deposits (or the money supply), would _______________ by ________________ million, assuming that there are no cash leakages and that banks hold zero excess reserves.
e Fed undertakes an open market sale, selling $3 million worth of securities to a bank. If the required reserve ratio is 11%, checkable deposits (or the money supply), would _______________ by ________________ million, assuming that there are no cash leakages and that banks hold zero excess reserves.
Bank
Increase in Checkable Deposits
New Required Reserves
New Checkable Deposits Created by Extending New Loans
A
$0
$0
$1,000
B
$1,000
(A)
(B)
C
(C)
$90
(D)
D
$810
(E)
(F)
M
M
M
M
Explanation / Answer
Bank
Increase in Checkable Deposits
New Required Reserves
New Checkable Deposits Created by Extending New Loans
A
$0
$0
$1,000
B
$1,000
$100
$900.00
C
$900.00
$90
$810.00
D
$810
$81.00
$729.00
M
$729.00
$72.90
$656.10
1.
Required reserve ratio = 10%
New required reserve by bank B at A = 10%*1000 = $$100
New loans crated by bank B at B = 1000 – 100 = $900
2.
Checkable deposit at bank C at C = $900
New Loans created by bank C at D = 900 – 10%*900 = $810
3.
Required reserve at Bank D at E = 10%*810 = $81
New loans crated by bank D at F = 810-81 = $729
4.
Total amount of checkable deposit at G = 1000+900+810+729
Total amount of checkable deposit at G = $3439
Pl. repost other unanswered questions for their proper answers!
Bank
Increase in Checkable Deposits
New Required Reserves
New Checkable Deposits Created by Extending New Loans
A
$0
$0
$1,000
B
$1,000
$100
$900.00
C
$900.00
$90
$810.00
D
$810
$81.00
$729.00
M
$729.00
$72.90
$656.10
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