Help with econ (reserve ratio problem)?
Banks can lend out a certain amount of money, but a reserve ratio requirement must be kept in reserves contingent on what you have lent out. So if you add 1600 into the reserves with a reserve ratio of .2 you have 1600 * 5 = 8000 - 1600 = 6400 6400
Economics: Macro. Need help with reserve ratio?
Assuming no currency drains , no excess reserves and immediate expansion of multiplier effect: [a] M = D = MB•MM MM = 1/rr [money multiplier] M = MB/rr [money supply] M° = 4'000 [initial money supply] rr° = 0.2 [initial reserve requirement] MB = M°•rr° = 4'000•0.2 = 800 [monetary base] MM° = 1/rr° = 1/0.2 = 5 [initial money multiplier] ΔM = -800 (4'000-800) = MB/rr¹ = 800/rr¹ rr¹ = 800/(4'000-800) = 800/3'200 = 0.25 [final reserve requirement] MM¹ = 1/rr¹ = 1/0.25 = 4 [final money multiplier] [b] rr° = 0.5 [initial reserve requirement] MB = M°•rr° = 4'000•0.5 = 2'000 [monetary base] MM° = 1/rr° = 1/0.5 = 2 [initial money multiplier] ΔM = +1'000 (4'000+1'000) = MB/rr¹ = 2'000/rr¹ rr¹ = 2'000/(4'000+1'000) = 2'000/5'000 = 0.4 [final reserve requirement] MM¹ = 1/rr¹ = 1/0.4 = 2.5 [final money multiplier]
Econ Question Help If the required reserve ratio is 20 percent, what is the monetary multiplier?
If the required reserve ratio is 20 percent, what is the monetary multiplier? _____? If the monetary multiplier is 40, what is the required reserve ratio?____ percent ?
What does the RBI do with the Cash Reserve Ratio amount deposited by banks?
The CRR i. e Cash Reserve Ratio is amount of money kept aside by banks based on Net Time and Demand Liabilities i. e NDTL. The CRR is is maintained to prevent banks from bankrupt and banks do not receive any profit or they cannot invest the money anywhere. CRR is the most liquid in nature.For e.g. If banks NDTL is 100 Cr.and CRR rate prescribed by banks is 4% then 4 Cr. will be kept aside. CRR is kind of quantitative tool which helps in controlling inflation or deflation and hence money supply in the market.
The First National City Bank is currently not meeting the required reserve ratio.?
Which of the following actions would NOT help the bank increase its reserves? A. Sell securities B. Borrow reserves from a Federal Reserve bank C. Borrow reserves in the federal funds market D. Make additional loans
Economics calculating Required reserve ratio help please!!!?
If banks have a required reserve ratio of 0.2 and Tanisha deposits $50 of cash in her bank deposits, calculate: a. The bank’s excess reserves as soon as Tanisha makes her deposit. b. The maximum amount of loans that the banking system can make. c. The maximum amount of new money that the banking system can create.
What is reserve deposit ratio in simple terms?
Its simply the potion of a banks total deposits that it should keep as cash.If a bank has 100 Million as total deposits and the Central Bank has recommended a 10% Reserve Ratio, then a bank should keep 10 million as cash. Here cash means either as Vault Cash or as deposits with the Central Bank.Why is it done ?Banks, ideally will want to maximise their lending ( and therefore their profit) would like to keep idle cash to the minimum. But, if all the funds are lent out, they might have difficulties in repayments to depositors. So, reserve banks ensure they keep some cash as reserve always.How is it used?It is one of the important tools that Central Banks use to in their monetary policy and helps in regulating money supply.When the central bank wants to increase money supply, it reduces the reserve ration, so banks have more money to lend/supply to the market. It increases the reserve ratio when it feels that there is too much money in circulation, leading to inflation, so banks have less money to lend.How much is it?>Some countries like Canada, UK , Australia and New Zealand don't have any reserve requirements.>Most countries have a reserve ratio of about 2 to 5%. India typically has about 4%.> Some countries like China, Brazil, Mexico, Nigeria have very high requirements - about 15 to even 40%.
Is there any difference between legal reserve ratio and cash reserve ratio?
LRR (Legal Reserve Ratio) refers to that legal minimum fraction of deposits which the banks are mandate to keep as cash with themselves. The LRR is fixed by the Central Bank. It has two components:Cash Reserve RatioStatutory Liquidity RatioCash Reserve Ratio: It is the minimum amount of funds that a commercial bank has to maintain with the Central Bank in the form of deposits. A fall in CRR will lead to an increase in the money supply and vice-versa.Statutory Liquidity Ratio: It is concerned with maintaining the minimum reserve of assets with Central Bank. It is the minimum percentage of assets to be maintained in the form of either fixed or liquid assets with commercial Bank.So, LRR is a broad concept and CRR is a part of it. Hope it helps. Thank you!
A bank is not meeting the required reserve ratio. Which action would NOT help the bank increase its reserves?
A. Borrow reserves in the federal funds market B. Make additional loans C. Sell securities D. Borrow reserves from a Federal Reserve bank
Do the Federal Reserve rate hikes help or undermine the market economy?
The existence of the federal reserve undermines the market economy. Without a central bank- interest rates would be set completely by the market. In banking interest rate coordinate things between lenders and borrowers.If there were no central bank rates would be determined by individual banks- deciding if they have enough money out in loans. If a bank’s vaults are filled with deposits and they are looking to lend money- then they will keep rates low to attract borrowers.Then when they have enough borrowers and want deposits banks will start increasing rates.When you have a central bank, interest rates become political. One of the arguments for a central bank is that it is to be a lender of last resort- so it in effect ends up being at least the guide for all interest rates. So if the central bank sets the rates too low- then people will not put their money into banks and bonds but into the stock market.So you get an artificial boom where banks are giving crackheads and tweakers loans to buy houses and people are buying the IPO of hypermegamondonet.com- despite the fact they don’t know what if anything they do and tulips.The risk of interest rates might be too low are increased when you have fractional reserve banking. The reason is that it is inherently inflationary.If a bank receives $100 million in deposits they will then go and lend let's say $90 million. Since they tell the depositors they have the full $100K they have effectively created $90 million. Over time there is a chance this money inflation will lead to higher prices (price inflation).27.4 How Banks Create MoneyThis makes it hard to tell what people really want so the dangers of an artificial boom increases.