Question

A bank has deposits of $500. It holds reserves of $80. It has purchased government bonds...

A bank has deposits of $500. It holds reserves of $80. It has purchased government bonds worth $60, and made $450 worth of loans. Set up a T-account balance sheet for the bank, with assets and liabilities. What is the bank's net worth?

Question 1 options:
-$190
$190
-$90
$90

Suppose the Fed conducts an open market purchase by buying $10 million in Treasury bonds from Wakanda Bank. What will the new balance sheet look like after Wakanda Bank converts the bond sale proceeds to new loans? The initial Wakanda Bank balance sheet contains the following information:

Assets: Reserves = $30, Bonds = $50, and Loans = $50

Liabilities: Deposits = $150, and Equity = $20

Question 2 options:
Reserves = $20, Bonds = $40, Loans = $50, Deposits = $150, and Equity = $20
Reserves = $40, Bonds = $60, Loans = $60, Deposits = $160, and Equity = $20
Reserves = $30, Bonds = $40, Loans = $60, Deposits = $150, and Equity = $20
Reserves = $30, Bonds = $60, Loans = $50, Deposits = $140, and Equity = $20

The central bank increases the money supply by $150 billion, when the velocity of money was 3.5. Now economists are expecting the velocity of money to increase by 30% as a result of the monetary stimulus. What is the total increased nominal GDP?

Question 3 options:
$450 billion
$158 billion
$682 billion
$532 billion

Consider nominal GDP is $1300, and the money supply is $600.

a. What is the Velocity?

b. If nominal GDP rises to $1700, but the money supply doesn't change, how has the velocity changed?

c. If GDP falls back to $1300 and the money supply falls to $525, what is the new velocity?

Question 4 options:

a)Velocity = 2.2, b)Velocity will INCREASE by 0.6, c) Velocity = 2.5
a)Velocity = 3.6, b)Velocity will INCREASE by 0.6, c) Velocity = 4
a)Velocity = 2.2, b)Velocity will DECREASE by 0.6, c) Velocity = 2.5
a)Velocity = 3.6, b)Velocity will DECREASE by 0.6, c) Velocity = 4

Homework Answers

Answer #1

1.

Correct Answer:

$90

Assets Liabilities
Reserves = $80 Deposits = $500
Bonds = $60 Equity = $90
Loans = $450
Total = $590 Total = $590

Net worth = Total assets - liability = 590 - 500

Net worth = $90

==

2.

Correct answer:

Reserves = $30, Bonds = $40, Loans = $60, Deposits = $150, and Equity = $20

Working note:

New reserve = 30 + 10 - 10 = $30

New bond = 50-10 = $40

New loans = 50+10 = $60

==

3.

Correct Answer:

$682 billion

Nominal GDP = 150*(3.5)*(1+30%)

Nominal GDP = 682.5 Billion

==

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