Macroeconomics
10th Edition
ISBN: 9781319105990
Author: Mankiw, N. Gregory.
Publisher: Worth Publishers,
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Question
Chapter 4, Problem 5QQ
To determine
The changes on the bank’s assets and capital due to the leverage effect.
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Students have asked these similar questions
Which of the following factors pose a limit on the ability of commercial banks to increase the quantity of money in circulation by extending new loans?
Select one or more:
a. the quantity of Central Bank reserves that they own
b. the quantity of money that savers lent to them by opening deposits
c. the behavior of households and firms, which reduce the quantity of money in circulation by repaying previous loans.
d. the availability of profitable lending opportunities in the economy
e. the willingness of household and firms to take up new debts at the given interest rate
BALANCE SHEET OF BANK A (S IN MILLIONS)
ASSETS
LIABILITIES and NET WORTH
Reserves
(Cash/Reserves at Fed)
550
Demand Deposits
$100
Losns
20
Govt. Securities
90
Net Worth (Owners' Equity)
What is the net worth of this bank?
2.
If the required reserve is 10%, what is the amount of REQUIRED RESERVES that this bank must bold?
3.
What then is the mount of EXCESS RESERVES that this bank is now holding?
How much does this bank have available for NEW LOANS?
5.
If the required reserve is increased to 20%, whal is the amount of REQUIRED RESERVES that this bank
must bold?
Suppose a bank's assets have an average duration of 3 years, and its liabilities have an average duration of 5 years. Since this bank has a ________ duration gap, a fall in market interest rates will _______ bank capital.
Select one:
A. positive; increase
B. negative; decrease
C. negative; increase
D. positive; decrease
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- 01. This bank's actual reserves are $_______ 02. Assuming a required reserve ratio of 10%, this bank's requirered reserves are $_______. 3. Assuming a required reserve ratio of 10%, the amount of money that the whole baning system can create is $_____ 4. Assuming a required reserve ratio of 20%, the impact on the quantity of money issued by the whole banking system will be $__________.arrow_forwardBelow is the balance sheet for a bank. Under "Other" it has listed "$X" just think of this as the dollar amount needed to make the balance sheet balance. It is not important what that value is for this question. AssetsLiabilitiesReserves 32Deposits 205Loans 150 Securities 53Other $X Using the balance sheet above, find the level of required reserves for this bank if the required reserve ratio = 8%(Give answers to 2 decimal places as needed)arrow_forwardQuestion 2 B A commercial bank has capital of $5000 and a leverage ratio of 10. If the value of the bank’s assets increases by 5%, then its capital has _____ to ______. Select one: a. increased / $5,250 b. increased / $5,500 c. decreased / $4,500 d. decreased / $4,000 e. decreased / $2,500 Full explain this question and text typing work only We should answer our question within 2 hours takes more time then we will reduce Rating Dont ignore this linearrow_forward
- 2. Happy Bank starts with $200 in bank capital. It then takes in $800 in deposits. It keeps 12.5% (1/8th) of deposits in reserve. It uses the rest of its assets to make bank loans. A.) Show the balance sheet of Happy Bank.B.) What is Happy Bank’s leverage ratio?C.) Suppose that 10% of the borrowers from Happy Bank default and these bank loans become worthless. Show the bank’s new balance sheet. Please only answer part D D.) By what percentage do the bank’s total assets decline? By what percentage does the bank’s capital decline? Which change is larger? Why?arrow_forwardYour bank has the following balance sheet: Assets Liabilities Checkable Reserves $90 million $380 million deposits $130 Securities million Loans $200 million Bank capital $40 million If the required reserve ratio is 20%, what will be the size of this bank (as measured by its total assets or liabilities) after $20 million deposit outflow if it just meets reserve deficiency by taking out a discount loan from the Federal Reserve? $402 million $400 million. OOOO $420 million. $412 million.arrow_forwardBelow is the balance sheet for a bank. Under "Other" it has listed "$X" just think of this as the dollar amount needed to make the balance sheet balance. It is not important what that value is for this question. AssetsLiabilitiesReserves 44Deposits 255Loans 155 Securities 51Other $X Using the balance sheet above, find the level of excess reserves this bank is holding if the required reserve ratio = 6%(Give answers to 2 decimal places as needed)arrow_forward
- Assuming an economy have only two commercial banks in it banking system, Classic Bank and Prudent Bank. The following shows the balance sheet of the two banks as at 2019. Classic Bank Balance sheet as at December, 2019 GHSm GHSm Assets: Liabilities & Equity: Reserves 1,000 Deposits 3,000 Securities 2,000 Equity 7,000 Loans & Advances 1,000 Property, Plant and Equipment 6,000 . 10,000 10,000 Prudent Bank Balance sheet as at December, 2019 GHSm GHSm Assets: Liabilities & Equity: Reserves 600 Deposits 2,500 Securities 1,500 Equity 4,400 Loans & Advances 800 Property, Plant and Equipment 4,000 . 6,900 6,900 Assume a required reserve ratio of 10%. What is the maximum amount that the money supply can be expanded? What would be the effect of a fall in reserve ratio to 5%, on the maximum amount that the money supply can be expanded?arrow_forwardDMacroeco X + A learn.vccs.edu/courses/362470/quizzes/2905964/take E Apps M Gmail YouTube Maps Get My Payment | . Question 13 Which of the following will yield to a bank the lowest return? O Short term loans with little risk. Long term loans with a lot of risk. There is no distinction in the types of loans and risk or potential return. Loans made where the liquidity rate is the highest. Question 14 2 pts The Federal Reserve has the duty of regulating the nation's money supply. True False Question 15 2 pts P Type here to searcharrow_forward22) Assume that the average duration of a bank's $100 million of assets is five years, while the average duration of its $80 million of liabilities is three years. Suppose a 5 percentage point increase in interest rates occurs. Calculate: a. the change in the value of the assets; b. the change in the value of the liabilities; c. the change in the bank's net worth.arrow_forward
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