Chpt19practiceQA

Chpt19practiceQA - Econ 3900 Macroeconomics Prof. Grace O...

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
Econ 3900 Macroeconomics Prof. Grace O 1 Practice Questions Chapter 19 1. As the 2008–2009 financial crisis unfolded, one major U.S. bank had a leverage ratio of 54. In Canada regulators put a ceiling on bank leverage ratios of 20. Compare the change in asset values that would push the capital in the U.S. bank to zero, compared with the change required to eliminate capital in a Canadian bank at the ceiling leverage ratio. What is the implication of the differences in maximum leverage ratios for the stability of the banking system? 2. Construct a bank balance sheet with the following items: reserves, deposits, loans, securities, capital, and debt. Choose values so that the reserve to deposit ratio is 10 percent and the leverage ratio is 10. Give an example of a change in asset in asset values that would push bank capital to zero. What happens when bank capital is gone? 3. As interest rates increase, people economize on their holdings of currency relative to other types of bank deposits, and banks economize on their holdings of reserves relative to deposits. a. Using the monetary base-money multiplier framework, explain how the money supply changes as interest rates increase. b. Graphically illustrate money supply and money demand when the nominal interest rate is on the vertical axis and the quantity of money is on the horizontal axis. 4. Why does the Federal Reserve not have complete control over the size of the money supply?
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 5

Chpt19practiceQA - Econ 3900 Macroeconomics Prof. Grace O...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online