(f). Now the Federal Reserve on June 2, 2001 SOLD $3,000,000 worth of T-bonds to
ID: 1211487 • Letter: #
Question
(f). Now the Federal Reserve on June 2, 2001 SOLD $3,000,000 worth of T-bonds to the Bank of Chaffey. This is the only transaction that took place on June 2, 2001 at the Bank of Chaffey. Starting with the same balance sheet numbers above (shown above), fill in the balance sheet numbers for the Bank of Chaffey after the Fed SOLD the T-bonds (end of June 2, 2001).
Assets
Liabilities
Corporate Bonds
Demand Deposits
T-bonds
Car Loans
Business Loans
Credit Card Loans
Deposit with the Federal Reserve
Vault Cash
Total
Total
(g) Calculate the Bank of Chaffey’s Total Reserves at the end of June 2, 2001 (show how you calculated your answer).
h) Calculate the Bank of Chaffey’s Required Reserves at the end of June 2, 2001 (show how you calculated your answer).
(i) Calculate the Bank of Chaffey’s Excess Reserves at the end of June 2, 2001 (show how you calculated your answer).
(j) At the end of June 2, 2001, calculate the economy wide money creating potential of Bank of Chaffey (how much money can the Bank of Chaffey potentially create through the entire banking system). Make sure you show you work.
(k) Explain the reason the Federal Reserve would sell $3,000,000 worth of T-bonds (what the Fed is trying to accomplish with this sale in terms of banking activity and what the Fed is trying to fight). Use numbers from (j) and (e) above in your answer here. (A good answer here means a lot of points! Don't be lazy with your answer.)
Assets
Liabilities
Corporate Bonds
Demand Deposits
T-bonds
Car Loans
Business Loans
Credit Card Loans
Deposit with the Federal Reserve
Vault Cash
Total
Total
Explanation / Answer
For, this question also , you should have provided the orginal Table ,as now i cann't see the table which you provided in last question and is also used in this question
(g) Calculate the Bank of Chaffey’s Total Reserves at the end of June 2, 2001 (show how you calculated your answer).
Total Reserve = Deposits with FED + Vault Cash = $5,000,000 + $4,000,000 = $9,000,000
h) Calculate the Bank of Chaffey’s Required Reserves at the end of June 2, 2001 (show how you calculated your answer).
Required reserve = 0.08*40,000,000 = $3,200,000
(i) Calculate the Bank of Chaffey’s Excess Reserves at the end of June 2, 2001 (show how you calculated your answer).
Excess reserve = Total Reserve - Required reserve = $9,000,000 - $3,200,000
= $5,800,000
(j) At the end of June 2, 2001, calculate the economy wide money creating potential of Bank of Chaffey (how much money can the Bank of Chaffey potentially create through the entire banking system). Make sure you show you work.
Money Multiplier = 1/rr = 1/0.08 = 12.5
money creating potential = Money Multiplier*Demand Deposit =12.5*40,000,000
= $500,000,000
(k) Explain the reason the Federal Reserve would sell $3,000,000 worth of T-bonds (what the Fed is trying to accomplish with this sale in terms of banking activity and what the Fed is trying to fight). Use numbers from (j) and (e) above in your answer here. (A good answer here means a lot of points! Don't be lazy with your answer.
By selling the T-Bonds, FED is trying to decrease the money supply here as FED would be fighting with high Inflation here , as when FED sells Bonds to the Bank, the excess reserve of Bank decreases as reserves are used to buy Bonds, As excess reserve decreases , so Bank now can lend less loans in the market, Hence Money supply genereated due to the intial demand deposit will be less than the potential as excess reserves left to loan out has decreased.
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Assets
Liabilities
Corporate Bonds
Demand Deposits
T-bonds 3,000,000
Car Loans
Business Loans
Credit Card Loans
Deposit with the Federal Reserv 5,000,000
Vault Cash
Total
Total
Just , these two changes, every thing else remain same in the table.
Assets
Liabilities
Corporate Bonds
Demand Deposits
T-bonds 3,000,000
Car Loans
Business Loans
Credit Card Loans
Deposit with the Federal Reserv 5,000,000
Vault Cash
Total
Total
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