i need Question no 6 Solution Just please urgently 1) Suppose the central bank decides to lend $2million to a particular bank (Kangaroo Bank) on the condition that Kangaroo Bank must make an...


i needQuestion no 6
Solution Just please urgently



1) Suppose the central bank decides to lend $2million to a particular bank (Kangaroo Bank) on the condition that Kangaroo Bank must make an additional $2million loan to one of its customers.





    • Show the effect this has on the balance sheets of the central bank and Kangaroo Bank.

    • If the customer uses those funds to buy a house from a person who banks with Koala Bank, show the effects this will have on the balance sheets of Kangaroo and Koala Bank.






  1. Suppose that, as a result of increased use of electronic payments, banks no longer need to hold as much vault cash. Banks decide to reduce their vault cash holdings by $250million.

    • Show the effects this would have on the balance sheets of commercial banks and the central bank.

    • If, at the same time, depositors decide to reduce their cash holdings by $50million by depositing that amount with their banks, show the combined effect of these decisions on the balance sheets of commercial banks.






  2. Suppose that banks aim to hold reserves equal to 8 per cent of deposits. Also suppose that desired holdings of currency by the non-bank public are 2 per cent of deposits. Calculate the following using the money multiplier model set out in the lectures:

    • The simple deposit multiplier

    • The money multiplier

    • If the central bank supplies an additional $50m of bank reserves, what will be the effect on the total money supply?

    • How might a financial panic affect the money multiplier and the deposit multiplier?

    • How would you expect the central bank to respond in that situation?






  3. Suppose the total money supply is $400bn, and the parametersr andc are the same as in question 3. Calculate the following:

    • The monetary base

    • The stock of currency held by the non-bank public

    • Bank reserves

    • What is the effect on the stock of money if the reserve ratio falls to 7 per cent, the currency ratio is unchanged, and the monetary base is held constant?





5) Suppose that the central bank decides to expand its balance sheet by $200bn. There are three ways it could do this:





    • By lending to commercial banks

    • By buying securities from commercial banks

    • By buying securities directly from household investors




Show how each of these actions would affect:



  • The balance sheets of commercial banks, the central bank and households

  • Bank reserves and the total money supply


    6) If a commercial bank decides to compete more aggressively to expand its share of the lending market, what factors might constrain its ability to do so?


7) Using the RBA web site (Table D3 in the Statistic section) look up the most recent exact values of the following variables:



  • The money base

  • Currency (seasonally adjusted)

  • Broad money (seasonally adjusted)


8) From this information, calculate the following:



  • The reserve ratio

  • The deposit multiplier

  • The ratio of currency to deposits


The money multiplier


9) Using the same data sources, construct a graph showing the value of the money multiplier since 2010.




10) Your graph from the previous question should show that two large drops in the money multiplier occurred during that period:



  • When did these occur?

  • What sorts of things might happen which could explain falls in the money multiplier?

Jun 08, 2022
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