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Unformatted text preview: Department of Economics Amherst College Economics 11 Fall 2005 Problem Set Week 11 Answers 3. The balance sheets below show the current position of all banks and the Federal Reserve. The required reserve ratio (R) is 10% and the banks carry no excess reserves. The amount of currency held by individuals is fixed at 100 and does not change as a result of monetary policy. All Banks Federal Reserve Assets Liabilities Assets Liabilities Reserves 300 Deposits 3000 Government bonds 200 Currency 120 Reserves 300 Loans 3200 Borrowing from the Fed 250 Loans to banks 250 Net Worth 250 Net Worth 30 a. In the Fed’s balance sheet above, fill in the 2 missing values of reserves and net worth at the Fed. (5 points) b. Is the banking system in equilibrium? Explain. (5 points) The banking system is inequilibrium beacause the required reserves (=.1(3000)) is equal to available reserves (=300) c. The Fed wants to decrease the Money Supply by 600 (to 2400) through an open market operation (OMO). State whether the Fed will engage in an open market market operation (OMO)....
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This note was uploaded on 03/02/2010 for the course ECON 57 taught by Professor Woglom during the Spring '08 term at UMass (Amherst).
- Spring '08