Question

Suppose Bank of Queenslanders hold 10% of deposits as reserves. How much money is created if...

Suppose Bank of Queenslanders hold 10% of deposits as reserves. How much money is created if RBA buys back a $20,000 bond from Kevin, a VIP depositor in Bank of Queenslanders?

$2,000

$200,000

$18,000

$0

Business   Economics   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

The amount of money created by each $1 worth bond bought by the central bank is given by the money multiplier. The money multiplier is the simple reciprocal of the reserve requirement. Reserve requirement is the percentage of deposit money the bank keeps as a required reserve.

Therefore, in this case, the money multiplier is

Therefore, an increase in the money supply is

Therefore, the correct option is: $200,000

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Assume that required reserves are 7 percent of deposits and that people hold no currency—all money...
Assume that required reserves are 7 percent of deposits and that people hold no currency—all money is held in the form of checking deposits. a. Suppose that the Federal Reserve purchases $30,000 worth of government bonds from Ellen (a private citizen), and that Ellen deposits all of the proceeds from the sale into her checking account at Z Bank. Construct a balance sheet, with assets on the left and liabilities on the right, to show how Ellen’s deposit creates new...
1. You are given this account for a bank Assets Liabilities Reserves $450 Deposits $3000 Loans...
1. You are given this account for a bank Assets Liabilities Reserves $450 Deposits $3000 Loans $2550 The required reserve ratio is 10% a. How much is the bank required to hold as reserves given its deposits of $3000? b. How much are its excess reserves? c. By how much can the bank increase its loans? d. Suppose a depositor comes to the bank and withdraws $200 in cash. Show the bank’s new balance sheet, assuming the bank obtains the...
2.5 You are given this account for a bank: Assets Reserves Loans $1,200 6,800 $8,000 Liabilities...
2.5 You are given this account for a bank: Assets Reserves Loans $1,200 6,800 $8,000 Liabilities Deposits The required reserve ratio is 10 percent.   a. How much is the bank required to hold as reserves given its deposits of $8,000?   b. How much are its excess reserves?   c. By how much can the bank increase its loans?   d. Suppose a depositor comes to the bank and withdraws $500 in cash. Show the bank’s new balance sheet, assuming the bank obtains...
Assume that a bank has on its asset side reserves of 500 and loans of 3000...
Assume that a bank has on its asset side reserves of 500 and loans of 3000 and on its liability side deposits of 3500. Assume that the required reserve ratio is 10 percent. (a) How much is the bank required to hold as reserves given its deposits of 3500? (b) How much are its excess reserves? (c) By how much can the bank increase its loans? (d) Suppose a depositor comes to the bank and withdraws 400 in cash. Show...
1. Suppose banks hold 10% reserves (although there is no legal reserve requirement banks still hold...
1. Suppose banks hold 10% reserves (although there is no legal reserve requirement banks still hold reserves for safety reasons). Suppose the public sector printed $10,000 in currency to pay its bills and suppose households deposited the currency into the banking system. How much of an increase would there be in the level of demand deposits and loans? 2. What would happen if, afterwards, the central bank sold $5000 in securities to buyers in the secondary market?
1. Suppose banks hold 10% reserves (although there is no legal reserve requirement banks still hold...
1. Suppose banks hold 10% reserves (although there is no legal reserve requirement banks still hold reserves for safety reasons). Suppose the public sector printed $10,000 in currency to pay its bills and suppose households deposited the currency into the banking system. How much of an increase would there be in the level of demand deposits and loans? 2. What would happen if, afterwards, the central bank sold $5000 in securities to buyers in the secondary market?
You are given this balance sheet for a bank. Assets Liabilities Reserves $ 200 Deposits $2,000...
You are given this balance sheet for a bank. Assets Liabilities Reserves $ 200 Deposits $2,000 Loans $ 1,800 The required reserve ratio is 10%. a. How much is its excess reserve? b. Suppose Ms. A deposits $1,000 to her account at this bank. Show the effect of this transaction on the bank’s balance sheet. How much is its excess reserve after the transaction? c. How much will M1 increase when the money creation process (involving the whole banking sector...
We are going to make a table tracking the deposits, reserves and loans of a bank...
We are going to make a table tracking the deposits, reserves and loans of a bank as they take in deposits and make loans. Deposits means how much money (which we will call gold) the bank owes to its depositors (people who deposit their money in the bank). Reserves means how much gold the bank has in the vault. Loans means how much gold the bank has loaned (lent?) to people in the form of mortgages, car loans, business loans...
Suppose that the only deposits requiring reserves are checkable deposits (D), that the reserve requirement on...
Suppose that the only deposits requiring reserves are checkable deposits (D), that the reserve requirement on deposits (rr) is 10 percent, and that the public always holds 40 percent as much currency as they hold in checkable deposits. A. If high-powered money (B) equals $100 billion, what is the level of M1? B. If high-powered money is increased by $50 billion (so ?B = $50b), by how much does M1 change? By how much do checkable deposits change (?D)?
Why dont banks hold 100 percent reserves ? How is the amount of reserves bank hold...
Why dont banks hold 100 percent reserves ? How is the amount of reserves bank hold related to the amount of money the banking system creates?
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT