The Fed lowers the discount rate, but this has no effect on the equilibrium Fed funds rate.c.(10 minutes)The Fed lowers the reserve requirement from 10% to 8%, and the equilibrium Fed funds rate declines as a result.2. (13 minutes)a.(10 minutes)Explain the difference between the three Fed discount window programs.b.(3 minutes)Why does the Fed set the discount rate above the Fed Funds rate?
3.(17 minutes)Assume that Securitas Bank is a medium-sized bank in the country of Hyponatremia. The bank’s only assets and liabilities at the beginning of the year are given in the following balance sheet:Securitas Bank Balance SheetAssetsLiabilitiesVault Cash$ 8 BillionChecking Deposits$200 BillionDeposits in theCentral Bank ?Loans from the Central Bank $ 10 Billion Loans$230 BillionTaxes Due$ 20 BillionBonds$ 50 BillionReal Estate$ 30 BillionBank Capital?a.(7 minutes)Assume the required reserve ratio is 6%, and the percentage of excess reserves that Securitas Bank wants to hold is 2%. Using this information, calculate the amount of deposits with the Central Bank, and the bank’s capital. Show your work.b.(10 minutes)Assume that over the course of the year, the bank receives $25 Billion in new deposits, makes $10 Billion in new loans to businesses and consumers, and $25 Billion in loans default. If there are no changes in any of the other balance sheet categories, show Securitas Bank’s balance sheet at year’s end. Be sure to include any changes in reserves, assuming that any new reserves are held as deposits with the Central Bank, so vault cash stays constant at $8 Billion. Note that the excess reserve ratio you found in part (a) no longer applies, although the required reserve ratio is still 6%Show the final balance sheet, notchanges in the balance sheet.Explain your reasoning, and show your work.
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