Economics Assignment Sample
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Added on 2021-06-18
Economics Assignment Sample
Added on 2021-06-18
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Running head: ECONOMICS ASSIGNMENTEconomics AssignmentName of the studentName of the universityAuthor Note
1ECONOMICS ASSIGNMENTTable of ContentsAnswer 1:...................................................................................................................................2Answer 2:...................................................................................................................................3Answer 3:...................................................................................................................................4Answer 4:...................................................................................................................................5Answer 5:...................................................................................................................................6Answer 6:...................................................................................................................................7Answer 7:...................................................................................................................................7Answer 8:...................................................................................................................................8Answer 9:...................................................................................................................................9References:...............................................................................................................................11
2ECONOMICS ASSIGNMENTRDRSReserves0IffIf1If*NBR1NBR*Answer 1:The balance sheet of the Fed’s reserve system has both assets and liabilities whileasset considers securities and loans to financial institutions and liabilities include currency incirculation and reserves. On the other side, open market sale occurs when the Federal Reservesells government securities to decrease reserves or currency (Ihrig, Meade & Weinbach,2015). As it helps the government to decrease the monetary base, it is contractionary bynature and it decreases the liability of the bank. Moreover, reverse repurchase agreementoccurs liability side of the bank. Hence, this creates bank liabilities. Non-borrowed reserves represent the difference between total reserves and borrowedreserves, which is the sum of credit. This credit is extended through the regular discountwindow program of the Federal Reserve along with credit extended with the help of certainliquidity facilities of the Federal Reserve (Ahelegbey, Billio & Casarin, 2016). Open marketoperation helps to change the quantity of non-borrowed reserves through decreasing thesupply of reserves by selling in open market. Figure 1: Open market sales
3ECONOMICS ASSIGNMENTSource: (created by author)According to figure 1, an open market sale reduces the reserve supply, that is R1 fromR* and consequently increases the federal funds rate from If* to If1. Thus, non-borrowingreserve decreases open market selling.Answer 2: Excess reserve (er) ratio is the ratio between excess reserve (ER) to demand deposits(D), that is, er = ER/ D. Moreover, the currency-deposit ratio (c) represents the ratio betweencurrency (C) with demand deposits (D), that is, c= C/D.During Great Depression, money supply decreased significantly and this in turn ledthe economy into depression. Consequently, deposits in bank decreased and the amount ofcurrency in hand increased (Blanchard & Summers, 2017). Moreover, most of thecommercial banks kept excess reserves enable. This implied ER and C increased compare todemand deposits. Those phenomenons had led the excess reserve ratio and currency-depositratio to increase further.Money supply has negative relation with currency holdings and the amount of excessreserves of banks. Hence, during depression, money supply decreased as C and ER increased.During this season, money base increased while money multiplier fell due to increase inexcess-reserve ratio (er) and currency-deposit (c) ratio (Goodhart, Bartsch & Ashworth,2016). Monetary base (MB) is the sum total of checkable deposits (D), excess reserve (ER)and currency (C) this value increases positive, that is, MB= C+D+ER. On the other side, theequation of money multiplier (m) is : m= (1+c)/ (rr+er+c). Hence, er and c have opposite relation with money supply.
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