Macroeconomics - McConnell Brue Flynn

Problems Pg 322 (Picture attached)

I'm not good with math and equations, I just want to make sure I am answering these correctly, thank you!

2.

Required reserve20% of $150,000 (checkable deposits)=30,000

Actual Reserve$30,000 + $8,000 (excess reserve)= $38,000

Excess Reserve$38,000 (actual reserve) - $30,000 (required reserve) = $8,000

3.

Checkable deposits = 100,000 + 5,000 = $105,000

Required reserves = 105,000 x 20% = $21,000

Excess reserves = actual reserves - required reserves

= (20,000 + 5,000) -21,000 = 25,000 - 21,000 = $4,000

Excess reserves = 4,000

4.

$20,000 (reserves) + 5,000 (new deposit) = 25,000

No change in checkable deposits due to sale in securities, so required reserves don't change still equaling $20,000.

Excess reserves = actual-required

25,000 - 20,000 = 5,000

The difference between the amount in question three and four is $1,000.

5.

A.

Required reserves = 0.20 x $100,000 = $20,000

Excess reserves = actual reserves - required reserves

$22,000 - $20,000 = $2,000

Loans will increase by $2,000

No change in reserves due to no checks having been drawn against the loan yet or securities.When the bank makes the loan, crediting the borrowers account (checkable deposits)for the amount ofthe loan,checkable deposits increase by $2,000.

B. The money supply has changed by $2,000

C.

Reserves$22,000$22,000$20,000

Securities$38,000$38,000$38,000

Loans$40,000$42,000$42,000

Checkable Deposits$100,000$102,000$100,000

D.

Required reserves = 0.15 $100,000 = $15,000

Excess reserves = actual reserves - required reserves

$22,000 - $15,000 = $7,000

Maximum amount of new loans bank can make $7,000

No change in reserves due to no checks having been drawn against the loan yet or securities. When the bank makes the loan, crediting the borrowers account (checkable deposits)for the amount ofthe loan, checkable deposits increase by $7,000.

Money supply changed by $7,000

Reserves$22,000$22,000$15,000

Securities$38,000$38,000$38,000

Loans$40,000$42,000$42,000

Checkable Deposits$100,000$107,000$100,000

7.

Monetary multiplier =_________1________

Required Reserve Ratio

Required Reserve Ratio is 10% (.1)1=10

.1

If the money multiplier is4,4 = 1

Required Reserve Ratio

Required Reserve Ratio = 1= .25

4

If the monetary multiplier is 4, the required reserve ratio is 25%

PROBLEMS 1. Suppose the assets of the Silver Lode Bank are $100,000 higher balance sheet will appear after the bank has lent this than on the previous day and its net worth is up $20,000. By how much and in what direction must its liabilities have additional amount. changed from the day before? LO15.2 b. By how much has the supply of money changed? c. How will the bank's balance sheet appear after checks 2. Suppose that Serendipity Bank has excess reserves of $8,000 and drawn for the entire amount of the new loans have been checkable deposits of $150,000. If the reserve ratio is 20 percent. cleared against the bank? Show the new balance sheet in what is the size of the bank's actual reserves? LO15.2 columns 2 and 2'. 3. Third National Bank has reserves of $20,000 and checkable de- d. Answer questions a, b, and c on the assumption that the posits of $100,000. The reserve ratio is 20 percent. Households reserve ratio is 15 percent. deposit $5,000 in currency into the bank and that currency is 6. Suppose the following simplified consolidated balance sheet is added to reserves. What level of excess reserves does the bank for the entire commercial banking system and that all figures are now have? LO15.3 in billions of dollars. The reserve ratio is 25 percent. LO15.5 4. Suppose again that Third National Bank has reserves of $20,000 and checkable deposits of $100,000. The reserve ratio Assets Liabilities and net worth is 20 percent. The bank now sells $5,000 in securities to the (1 ) Federal Reserve Bank in its district, receiving a $5,000 in- (1') Reserves $ 52 crease in reserves in return. What level of excess reserves does Checkable the bank now have? By what amount does your answer differ Securities 48 deposits $200 (yes, it does!) from the answer to problem 3? LO15.3 Loans 100 5. The following balance sheet is for Big Bucks Bank. The reserve ratio is 20 percent. LO15.3 a. What is the amount of excess reserves in this commercial banking system? What is the maximum amount the banking Assets Liabilities and net worth system might lend? Show in columns 1 and 1' how the (1 ) (2 ) (1') (2') consolidated balance sheet would look after this amount has Reserves $22,000 Checkable been lent. What is the size of the monetary multiplier? Securities 38,000 deposits $100,000 b. Answer the questions in part a assuming the reserve ratio is 20 percent. What is the resulting difference in the amount Loans 40,000 that the commercial banking system can lend? a. What is the maximum amount of new loans that Big Bucks 7. If the required reserve ratio is 10 percent, what is the monetary Bank can make? Show in columns 1 and 1' how the bank's multiplier? If the monetary multiplier is 4, what is the required reserve ratio? LO15.5