Assignment 8 & 9

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

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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 1. actual reserves ____64,000___ 2. required reserves _____64,000_ 3. excess reserves ___0____ C. By how much can this bank safely increase its loans? Explain! Since the bank has no excess reserves, it can’t safely loan out an extra money. 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 18,000 cash 46,000 dep. at Fed 180,000 gov. sec. 600,000 loans
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Assignment 8 & 9 - Econ 202 - Nelson Unit 8...

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