Apr 26 Monetary Policy.pdf - Final Exam th 4 Thurs May 8:00...

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1 Final Exam Thurs, May 4 th 8:00 – 10:00 am ILC N151
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Banking Crises 2 Liquidity problems Solvency issues
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An Example ASSETS LIABILITIES + N.W. Cash 100,000 Loans 725,000 Securities 200,000 Deposits 1,000,000 Other Liabilities 50,000 Bank Capital -25,000 1,025,000 1,025,000 3
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So what?
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Moral Hazard Decision-maker is not accountable YOU decide, but I am responsible O?en occurs with insurance SomeCmes called the Agency Problem 5
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Solution? Deposit Insurance! 6
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Monetary Policy
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Tools of Monetary Policy Set the Required Reserve Ra;o Establish the Discount Rate Conduct Open Market Opera;ons 8
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Monetary Policy & Balance Sheets 9
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Terminology 10 MONEY MULTIPLIER = 1 / required reserve ratio POTENTIAL DEPOSIT CREATION = money multiplier * excess reserves FOMC : Federal Open Market Committee
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Use the following bank balance sheet (rrr = .25) to answer the questions in order . a) What are the required reserves of this bank? 11 ASSETS LIABILITIES + NW Cash $ 800,000 Deposits $ 1,000,000 Loans $ 250,000 Bank Capital $ 200,000 Bonds $ 150,000 TOTAL: $ 1,200,000 TOTAL: $ 1,200,000
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Use the following bank balance sheet (rrr = .25) to answer the questions in order.
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