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Q1. Assume that the T-account for the Nan Bank Inc. is as shown below:

Assets                            Liabilities

Reserves $100,000        Deposits $500,000
Loans $400,000

a) If the Bank of Canada needs banks to hold 5 % of deposits as reserves, how much in surplus reserves does Nan Bank Inc. now hold?

b) Suppose that all the other banks hold just the required amount of reserves. If Nan Bank Inc. decides to decrease its reserves to only the required amount, by how much would the economy's money supply raise?

Q2. The economy of Kyleland includes 2000 $1 bills.

a) If people contain all money as currency, then determine the quantity of money?

b) If people contain all money as demand deposits and the banks maintain 100 % reserves, then find out the quantity of money?

c) If people contain equal amounts of currency and demand deposits and the banks maintain 100% reserves, then find out the quantity of money?

d) If people contain all the money as demand deposits and the banks maintain a reserve ratio of 10%, the find out the quantity of money?

e) If people contain equal amounts of currency and demand deposits and the banks maintain a reserve ratio of 10%, then find out the quantity of money?

Macroeconomics, Economics

  • Category:- Macroeconomics
  • Reference No.:- M910181

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