Author Question: A bank has reserves of 50, deposits of 100, loans of 20, and government securities of 30. Assume the ... (Read 85 times)

jilianpiloj · **on:** Jun 29, 2018

A bank has reserves of 50, deposits of 100, loans of 20, and government securities of 30. Assume the desired reserve ratio is 20 percent.

a. What are the bank's assets and what are its liabilities?
b. How much does the bank have in excess reserves?
c. What can the bank do with its excess reserves that will affect the quantity of money?

Question 2

The above table has data on the consumption function in the nation of Mojo.

a. What is the amount of autonomous consumption expenditure?
b. What is the marginal propensity to consume?

ricroger · **Reply #1 on:** Jun 29, 2018

Answer to Question 1

a. Assets are reserves, loans, and securities. Liabilities are deposits.
b. The excess reserves are 30, equal to the actual reserves of 50 minus the desired reserves of 20 (= 20 percent of 100 of deposits).
c. The bank can use its excess reserves to make loans. When it makes the loan, it will increase the quantity of money.

Answer to Question 2

a. Autonomous consumption expenditure equals the consumption expenditure when disposable income is 0, so autonomous consumption expenditure is 0.8 trillion.
b. The marginal propensity to consume equals 0.80.