Homework 71. Your uncle repays a $100 loan from Goliath National Bank by writing a $100 check from his GNBchecking…

Homework 7 

1. Your uncle repays a $100 loan from Goliath National Bank by writing a $100 check from his GNB 

checking account. Use T-accounts to show the effect of this transaction on your uncle and on 

GNB. Has your uncle’s wealth changed? Explain? 

2. GNB holds 250 million in deposits and maintains a reserve ratio of 10% 

a. Show a T-account for GNB 

b. Now suppose that GNB’s largest depositor withdraws $10 million in cash from her 

account. If GNB decides to restore its reserve ratio by reducing the amount of loans 

outstanding, show its new T-account 

c. Explain what effect GNB’s action will have on other banks 

d. Why might it be difficult for GNB to take the action described in part b? discuss another 

way for GNB to return to its original reserve ratio 

3. You take $100 you had kept under your mattress and deposit it in your bank account. If this 

$100 stays in the banking system as reserves and if banks hold reserves equal to 10 percent of 

deposits, by how much does the total amount of deposits in the banking system increase? By 

how much does the money supply increase? 

4. Happy Bank starts with $200 in bank capital. It then takes in $800 in deposits. It keeps 12.5 

percent 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 percent of the borrowers from Happy Bank default and these bank 

loans become worthless. Show the bank’s new balance sheet 

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? 

5. The federal reserve conducts a 10 million dollar open market purchase of government bonds. If 

the required reserve ratio is 10 percent, what is the largest possible increase in the money 

supply that could result? Explain. What is the smallest possible increase? Explain. 

6. Assume that the reserve requirement is 5 percent. All other things equal, will the money supply 

expand more if the federal reserve buys 2,000 dollars worth of bonds or if someone deposits in 

a bank 2,000 dollars that he had been hiding in his cookie jar? If one creates more, how much 

more does it create. 







Calculate Your Essay Price
(550 words)

Approximate price: $22

Calculate the price of your order

550 words
We'll send you the first draft for approval by September 11, 2018 at 10:52 AM
Total price:
$26
The price is based on these factors:
Academic level
Number of pages
Urgency
Basic features
  • Free title page and bibliography
  • Unlimited revisions
  • Plagiarism-free guarantee
  • Money-back guarantee
  • 24/7 support
On-demand options
  • Writer’s samples
  • Part-by-part delivery
  • Overnight delivery
  • Copies of used sources
  • Expert Proofreading
Paper format
  • 275 words per page
  • 12 pt Arial/Times New Roman
  • Double line spacing
  • Any citation style (APA, MLA, Chicago/Turabian, Harvard)

Our guarantees

Delivering a high-quality product at a reasonable price is not enough anymore.
That’s why we have developed 5 beneficial guarantees that will make your experience with our service enjoyable, easy, and safe.

Money-back guarantee

You have to be 100% sure of the quality of your product to give a money-back guarantee. This describes us perfectly. Make sure that this guarantee is totally transparent.

Read more

Zero-plagiarism guarantee

Each paper is composed from scratch, according to your instructions. It is then checked by our plagiarism-detection software. There is no gap where plagiarism could squeeze in.

Read more

Free-revision policy

Thanks to our free revisions, there is no way for you to be unsatisfied. We will work on your paper until you are completely happy with the result.

Read more

Privacy policy

Your email is safe, as we store it according to international data protection rules. Your bank details are secure, as we use only reliable payment systems.

Read more

Fair-cooperation guarantee

By sending us your money, you buy the service we provide. Check out our terms and conditions if you prefer business talks to be laid out in official language.

Read more

Order your essay today and save 10% with the coupon code: best10