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The central bank buys $15,000 worth of bonds in the open market from Christopher, who

deposits the proceeds in his checking account at Carla Bank. The required reserve ratio is

5%.

(a) What is the amount by which Carla Bank's liabilities have changed?

(b) Calculate the change in required reserves for Carla Bank.

(c) What is the dollar value of the maximum amount of new loans Carla Bank can initially

make because of Christopher's deposit?

(d) Based on the central bank's open-market purchase of bonds, calculate the maximum

amount by which the money supply can change throughout the banking system.

(e) How will the change in the money supply in part (d) affect aggregate demand in the short

run? Explain.

Sagot :

jepessoa

Answer:

(a) What is the amount by which Carla Bank's liabilities have changed?

Carla Bank's liabilities increased by $15,000 (bank deposits are liabilities).  

(b) Calculate the change in required reserves for Carla Bank.

Carla Bank's reserves must increase by $15,000 x 5% = $750

(c) What is the dollar value of the maximum amount of new loans Carla Bank can initially make because of Christopher's deposit?

Carla Bank can loan $15,000 x 95% = $14,250

(d) Based on the central bank's open-market purchase of bonds, calculate the maximum amount by which the money supply can change throughout the banking system.

Money multiplier = 1 / 5% = 20

The money supply has the potential to increase by $15,000 x 20 = $300,000

(e) How will the change in the money supply in part (d) affect aggregate demand in the short run? Explain.

Aggregate demand will increase since the total money supply increases. This should also help to decrease the interest rates and foster investment.

marvineetesh3

The amount by which Carla Bank's have changed is increased by $15,000, and the dollar value of the maximum amount of new loan is $14,250.

What are bonds?

A bond is a type of security under which the issuer of the bonds build upon the holder a debt, and is obliged or depending on the given terms.

(a).

The amount by which Carla Bank's liabilities have changed is increased by $15,000 because the bank deposits are liabilities, and that have to pay in the market for the bonds.

(b).

The change in required reserves for Carla Bank in that the amount would be increased by $750, mean 5% of the borrowed amount. i.e.,

[tex](\$15,000 \times \frac{5}{100})[/tex]

(c).

The dollar value of the maximum amount of new loans Carla Bank would be initially the 95% of the amount of care loan means $14,250. i.e.,

[tex](\$15,000 \times \frac{95}{100})[/tex]

(d).

Based on the purchase of the central bank open-market of bonds, the maximum amount by which the money supply can change passim the banking system is the money multiplier, it is computed as,

[tex]\text{Money multiplier} = \dfrac{1}{\text{Reserve ratio \%}}\\\\ \test{\text{Money multiplier}} = 20[/tex]

Then, the money supply has the potential to increased by:

[tex]=\text{Loan Value} \times \text{\Money Multiplier}\\\\=\$15,000 \times 20 = \$300,000[/tex]

(e).

The change in the money supply in part (d) affect aggregate demand in the short run, as the aggregate demand will raise. Since the total money supply raises. This should also support to fall the interest rates and foster investment.

To learn more about the bonds, refer to:

https://brainly.com/question/10777799

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