T-ACCOUNT FIRST BANK OF CALIFORNIA Assets Liabilities Reserves $
Posted: Mon May 02, 2022 8:42 am
T-ACCOUNT FIRST BANK OF CALIFORNIA
Assets
Liabilities
Reserves
$ 500
Government bonds/securities
$1,000
Loans
$ 48,500
TOTAL
$50,000
Deposits
$50,000
TOTAL
$50,000
A) Refer to the table above. If this bank is only holding
the minimum amount of reserves to meet the regulations, calculate
the reserve requirement ratio for this bank (in %).
b) Suppose the Central Bank in this economy conducted
an Open Market Sale of $500. What
will happen to the First Bank of California's reserves: increase or
decrease; and by how much? What would happen to the government
bonds owned by this bank: will it increase or decrease, and by how
much?
c) In practice, an open market purchase operation is not
completely controlled by the central bank of any economy. What are
the two factors that limit the Central Bank’s ability to control
total money supply in the economy?
Assets
Liabilities
Reserves
$ 500
Government bonds/securities
$1,000
Loans
$ 48,500
TOTAL
$50,000
Deposits
$50,000
TOTAL
$50,000
A) Refer to the table above. If this bank is only holding
the minimum amount of reserves to meet the regulations, calculate
the reserve requirement ratio for this bank (in %).
b) Suppose the Central Bank in this economy conducted
an Open Market Sale of $500. What
will happen to the First Bank of California's reserves: increase or
decrease; and by how much? What would happen to the government
bonds owned by this bank: will it increase or decrease, and by how
much?
c) In practice, an open market purchase operation is not
completely controlled by the central bank of any economy. What are
the two factors that limit the Central Bank’s ability to control
total money supply in the economy?