Lesson 9 essays

Lesson 9 essays - Securities $2 million Securities...

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Heather Shertz Enrollment #: 679722 Course: ECON 2035 Version N Page 1 of 1 Lesson 9 Essay 1 When the Fed purchases bonds from the First Nation Bank (FNB), FNB reserves will increase to $2 million regardless of whether FNB deposits the money with the Fed, or cashes it in for currency. FNB will also have a decrease in its' securities of $2 million. The Fed will have an increase in liabilities for the $2 million reserves, and an increase in securities for $2 million. The monetary base will rise by $2 million because MB = C + R, where C = Currency in circulation, and R = Reserves. Banking System Federal Reserve System Assets Liabilities Assets Liabilities
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Unformatted text preview: Securities - $2 million Securities + $2million Reserves $2 million Reserves +$2 million It is hard to say how much money they have created without a reserve ratio stated in the problem, but I will assume it is at 10%. Assuming a 10% required ration the money created is $20 million. The amount of increase generated through the multiple deposit expansion is figured by multiplying the reciprocal of the reserve ratio. $2,000,000 x 1/.10 = $20,000,000. Essay 2 The maximum amount of money, according to the simple deposit multiplier, that can be created is $50,000,000. Δ D = 1/rd x Δ R Δ D = 1/.10 x $5,000,000 Δ D = $50,000,000...
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This note was uploaded on 07/24/2011 for the course ECON 2035 taught by Professor Stahl during the Spring '08 term at LSU.

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