Question 3 (20 marks) Suppose the required reserve ratio is 10% and the general public do not hold cash. Study the following balance sheet of the commercial banking system. Liabilities $80,000 Assets Reserve Loans Securities and bonds Total $16,000 Deposits $52,000 $12,000 $80,000 Total $80,000 (a) Refer to the above situation, explain whether the commercial banking system has been fully loaned up. Support your explanation with relevant calculation and figures. (4 marks) (b) Refer to the above situation, (i) Construct a new balance sheet to show the immediate effects if the Central Bank purchases $9,000 bonds from the commercial banking system. Write your calculation working next to those items for supporting. No explanation is needed. (6 marks) (ii) Calculate the maximum amount of deposits after the Central Bank purchases $9,000 bonds from the commercial banking system. Show your working. Is the maximum deposits same as the maximum money supply in this case? Explain briefly. (4 marks) (ii) Now suppose the general public hold $15 per every $100 deposits. Calculate the maximum amount deposits and money supply respectively after the Central Bank purchases $9,000 bonds from the commercial banking system. Show your working. How can you explain the differences of the maximum money supply you obtain from (bii) and (biii)? (6 marks) Question 3 (20 marks) Suppose the required reserve ratio is 10% and the general public do not hold cash. Study the following balance sheet of the commercial banking system. Liabilities $80,000 Assets Reserve Loans Securities and bonds Total $16,000 Deposits $52,000 $12,000 $80,000 Total $80,000 (a) Refer to the above situation, explain whether the commercial banking system has been fully loaned up. Support your explanation with relevant calculation and figures. (4 marks) (b) Refer to the above situation, (i) Construct a new balance sheet to show the immediate effects if the Central Bank purchases $9,000 bonds from the commercial banking system. Write your calculation working next to those items for supporting. No explanation is needed. (6 marks) (ii) Calculate the maximum amount of deposits after the Central Bank purchases $9,000 bonds from the commercial banking system. Show your working. Is the maximum deposits same as the maximum money supply in this case? Explain briefly. (4 marks) (ii) Now suppose the general public hold $15 per every $100 deposits. Calculate the maximum amount deposits and money supply respectively after the Central Bank purchases $9,000 bonds from the commercial banking system. Show your working. How can you explain the differences of the maximum money supply you obtain from (bii) and (biii)? (6 marks)
