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Suppose First Main Street Bank, Second Republic Bank, and Third Fidelity Bank all have zero excess reserves. The required reserve ratio is 10%. Dmitri, a client of First Main Street Bank, purchases $500,000 of Treasury bills in an open market sale undertaken by the Fed. Upon receipt of Dmitri's check, the Fed subtracts $500,000 from First Main Street Bank’s Federal Reserve account, thereby extinguishing the money. Complete the following table to reflect any changes in First Main Street Bank's balance sheet (before the bank makes any new loans). First Main Street Bank's Balance Sheet Assets Liabilities Reserves -$500,000 Checkable Deposits -$500,000 Because the required reserve ratio is 10%, the $500,000 withdrawaldecreases First Main Street Bank's required reserves by$50,000 . In order to maintain the required reserve ratio, First Main Street Bank now mustincrease its reserves by$450,000 . One possible way to do this is todecrease its outstanding loans. Now suppose Caroline repays her loan of $450,000 to First Main Street Bank by writing a check issued by Second Republic Bank. First Main Street Bank uses funds from a loan repayment to increase its reserves instead of making new loans. Second Republic Bank then replenishes its reserves by using the funds from loan repayments by Antonio, who writes a check issued by Third Fidelity Bank. Third Fidelity Bank then uses a loan repayment from Frances to replenish its reserves instead of making new loans. Fill in the following table to show the effect of this ongoing chain of events at each of the banks, including the initial withdrawal at the beginning of the question. Enter each answer to the nearest dollar. Bank Decrease in Checkable Deposits Decrease in Required Reserves Decrease in Loans (Dollars) (Dollars) (Dollars) First Main Street Bank Second Republic Bank Third Fidelity Bank Assume this process continues, with each successive loan being repaid using a checking account and banks using repayments to replenish their reserves without issuing any new loans. Under these assumptions, the initial destruction of $500,000 by the Fed results in an overall decrease of in checkable deposits.
An increased supply of U.S. dollars on the foreign exchange market, all else equal, will result in an appreciation of the U.S. dollar. Although McDonalds operates in a market structure with many competitors and substitute foods, it often engages in _..
Consider the market for widgets (an inferior good). Suppose that we see an increase in household incomes and, at the same time, higher labor costs for widget producers. What is likely to happen to the equilibrium price and equilibrium quantity in thi..
Describe the current state of the U.S. economy using the two monetary aggregates (M1 and M2) currently published by the Federal Reserve. In your description, illustrate the trends of the two monetary aggregates. . Evaluate what the Federal Reserve Ba..
Two plants are emitting a uniformly mixed pollutant called gunk into the beautiful sky over Tourist Town. The city government decides that the total emissions must be reduced by 100 kgs of gunk per day. If both systems (the pollution tax and the perm..
A firm starts production of a new product, and forecasts production and sales during the time periods (t1,t2,t3)=(1,2,3). The demand during time period t is estimated to be equal to t(4-t)/p^2 where p is a price of a product the firm will have to cho..
Suppose an office supply store increased its price of file folders from $.79/box to $.99/box and the quantity demanded decreased from 85 boxes/month to 83 boxes/month. What is the price elasticity of demand for file folders? Is the demand elastic, un..
A country that has never had its own currency has formed a central bank and put you in charge of developing money.
Are monopolists guaranteed of making economic profits? Explain the long run equilibrium situation for a monopolistically competitive industry. Give two examples of industries that fit under this category.
A restaurant owner has the following short-run production function: Draw a table showing total, marginal and average product up to an input of ten workers, and plot these on a graph. If workers can be hired for $40 per day and the average meal is $6,..
In the context of a Keynesian open-economy income model for a country, carefully explain the impact of each of the following autonomous events upon equilibrium income in the country and upon the country’s current account balance: (a) an increase in d..
On September 18, 2003, hurricane Isabel struck the North Carolina Coast, causing extensive damage. For several days prior to reaching land the National Hurricane Center had been predicting the hurricane would come on shore between Cape Fear, North Ca..
Drexoogle has developed the first computer (the “earpod”) that fits in one’s ear and functions as a phone, can tell you the time, and will conduct Google searches all in response to a person’s voice commands. What is the price and quantity that maxim..
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