Which of the following is true about a standard bank

This preview shows page 4 - 6 out of 7 pages.

We have textbook solutions for you!
The document you are viewing contains questions related to this textbook.
Principles of Economics
The document you are viewing contains questions related to this textbook.
Chapter 26 / Exercise 8
Principles of Economics
Mankiw
Expert Verified
9. Which of the following is true about a standard bank balance sheet?I. An increase in the value of the bank’s assets must be accompanied by an increase in the liabilities of the bankII. A bank currently has $1000 in assets and a leverage ratio of 5. If the value of the assetsare cut in half, the leverage ratio will rise to 10.III. If a bank with $100 in deposits is keeping $20 in reserves, the reserve requirement must be 20%a) None of them are trueb) Only II is truec) Only III is trued) Only I and II are truee) Only I and III are true.
10. A consumer takes $1000 cash out of a jar and puts it in her checking account at the bank.. All banks always hold 20% of their deposits in reserve, loan out the rest, and nobody getting these loans holds any addition cash. Which of the following is true?I. There is no change in the money supply since both cash and checking deposits are in M1II. Total reserves in the banking system go up by $1000III. The money supply goes up by $5000
We have textbook solutions for you!
The document you are viewing contains questions related to this textbook.
Principles of Economics
The document you are viewing contains questions related to this textbook.
Chapter 26 / Exercise 8
Principles of Economics
Mankiw
Expert Verified
SECTION IIDO ONLY 1OF THESE 2 QUESTIONS (3 pages)WRITE ANSWER IN APPROPRIATE PLACE ON ANSWER DOCUMENT1. Parts of the questions deal with excerpts below from -growth/The Federal Reserve is ending its policyknown as quantitative easing (QE) by tapering its bond purchases and the buildup of idle bank reserves. This is already helping bank lending. The prospect of a further gradual normalization of Fed policy should lift economic growth above its devastating “new normal”–the slow GDP growth and high unemployment that have prevailed since 2008.The conventional view was that the Fed could be stimulative by buying bonds, setting interest rates near zero and adding massive bank reserves. Financial markets advertised the policy as “easy money,” but none of the channels worked. Instead, growth in GDP, wages, jobs, credit, the M2 money supply, bank lending and bank deposits were all notably weak, causing a grinding multiyear decline in middle-class living standards.The Fed’s stated goal with QE was to lower long-term interest rates, not increase credit or bank lending. Since the 2008 economic crisis the regulatory goal has been to reduce bank leverage and risk, restraining growth in total credit, even as the Fed guided more credit to upscale bond and securitization markets.a) Assuming Jane is one of many people selling $50,000 worth of bonds to the Fed. Show the T-account of Jane’s bank if she deposits all of the money in her checking account, but the bank, for the moment, hasn’t loaned any of it out. (1 point)b) Explain why, at this point:i) This is consistent with items in the first two paragraphs. (1 point) ii)

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture