Problem Set # 4
- The commercial banks in Zapland have
- Suppose that the reserve requirement for checking deposits is 10 percent and that banks do not hold any excess reserves.
- If the Fed sells $10,000 of government bonds, what is the effect on the economy’s reserves and money supply?
- Now suppose the Fed lowers the reserve requirement to 5%, but banks choose to hold another 5% of deposits as excess reserves. Why might banks do so?
- What is the overall change in the money multiplier and the money supply as a result of these actions?
- Which of the following is money?
Reserves$250
Loans$1,000
Deposits$2,000
Total Assets$2,500
- Construct the commercial banks’ balance sheet. If you are missing any assets call them “other assets”: if you are missing any liabilities, call them “other liabilities.”
- Calculate the banks reserve ratio
- If banks hold no excess reserves, calculate the money multiplier.
- An American Express traveler’s check
- Checking deposits at Washington Mutual bank.
- The check you have just written to pay for school fees.
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