Assignment 8 & 9 - Econ 202 Nelson Unit 8 Assignment...

Econ 202 - Nelson
Unit 8 Assignment Name______Ryan
Ingalls_________
I. The Bank of Nelson (BON) is a bank in the United States, with $18,000 cash in its vault,
and $46,000 on deposit at the Federal Reserve (the Fed). The customers of the bank have
on deposit $800,000 in checking accounts. The bank owns government securities worth
$180,000 and has made loans totaling $600,000. The FED imposes a 8% required reserve
ratio on this bank.
A. Put the assets and liabilities of the BON
into a balance sheet using the T-account at
right.
B. Calculate the bank’s
C. By how much can this bank safely increase its loans? Explain!
D. If the BON buys $10,000 of government securities from the
Fed,
1. determine the immediate change in M1 and M2
decrease them
2. show the changes in the bank’s balance sheet
3. calculate the amount by which the bank can
safely increase its loans
0
4. calculate the maximum possible change in total deposits in the banking system
0
E. If the Fed reduces the required reserve ratio to 5%,
1. determine the immediate change in M1 and M2
increase them
2. show the changes in the bank’s balance sheet
doesn’t change balance sheet