HW3 - Homework #3 Due Date: Wednesday October 19, 2011 by...

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Homework #3 Due Date: Wednesday October 19, 2011 by 1:15 p.m. Please answer the questions in a neat and orderly fashion on separate paper. Circle your answers where appropriate. 1. Consider the following balance sheet. All figures are millions of dollars. Assets Liabilities Reserves 100 Deposits 1000 Loans 800 Net worth 100 Bonds 200 Suppose the Federal Reserve buys $100 worth of bonds from this bank. Assume the required reserve ratio is 5%. a. Illustrate the initial change in the balance sheet. b. Can this bank make any new loans? How much? c. If banks make as many loans as possible and the public does not change their currency holding, by how much will the money supply increase as a result of this open market operation? Identify the final balance sheet values. Hint: use the formula. d. How does your answer to part c change if the currency-deposit ratio is 50%? e. Why would the Fed want to buy the bonds from the bank? 2. In the bank, deposits are 5,000, reserves are 1,000, bonds are 1,000, and loans are 3,000. The required reserve ratio is 10%. a.
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HW3 - Homework #3 Due Date: Wednesday October 19, 2011 by...

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