Assignment Task 1: Below is the Balance Sheet for the Bank of Upland as of October 1, 2017. The required reserve ratio is 5%. Using this information and the Balance Sheet below answer the following questions.
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Assets
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Liabilities
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$60 million Vault Cash
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$500 million Demand Deposits
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$120 million Treasury Bonds
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$55 million Car Loans
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$10 million Business Loans
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$40 million Credit Card Loans
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$180 million On Deposit at the Fed
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$35 million in Mortgages
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$500 million Total Assets
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$500 million Total Liabilities
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1) Calculate the Bank of Upland's Total Reserves as of October 1, 2017 (please show/explain how you got your answer).
2) Calculate the Bank of Upland's Required Reserves as of October 1, 2017 (please show/explain how you got your answer).
3) Calculate the Bank of Upland's Excess Reserves as of October 1, 2017 (please show/explain how you got your answer).
4) Determine the amount of Bank of Upland's Total Reserves which can legally be loaned out as of October 1, 2017 (please show/explain how you got your answer).
5) Calculate the Bank of Upland's Money Creating Potential throughout the entire Banking System as of October 1, 2017 (please show/explain how you got your answer).
Assignment Task 2: Start with the same Balance Sheet and required reserve ratio found in Part 1 above, and using the fact that the Federal Reserve had just bought $80 million worth of Treasury Bonds (T-bonds) from the Bank of Upland at the end of business on October 1, 2017 (no other transaction occurred at the Bank of Upland on October 1, 2017), answer the following questions.
1) Fill in the Bank of Upland's Balance Sheet numbers as of the start of business on October 2, 2017 for the categories found below. Start with the numbers in Part 1 above and incorporate the fact that the Federal Reserve (using Open Market Operations) had just bought $80 million worth of Treasury Bonds (T-bonds) from the Bank of Upland. Using a Word Table might help.
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Vault Cash
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Demand Deposits
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Treasury Bonds
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Car Loans
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Business Loans
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Credit Card Loans
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On Deposit at the Fed
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in Mortgages
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Total Assets
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Total Liabilities
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2) Calculate the Bank of Upland's Total Reserves as of October 2, 2017 (please show/explain how you got your answer).
3) Calculate the Bank of Upland's Required Reserves as of October 2, 2017 (please show/explain how you got your answer).
4) Calculate the Bank of Upland's Excess Reserves as of October 2, 2017 (please show/explain how you got your answer).
5) Calculate the Bank of Upland's Money Creating Potential throughout the entire Banking System as of October 2, 2017 (please show/explain how you got your answer).
6) Explain the reason the Federal Reserve would buy these T-bonds from the Bank of Upland and explain what the Federal Reserve is worried about. (In other words, what economic condition is the Fed trying to avoid and how would the bond sale help the Fed to avoid this economic condition?) You must use numbers you calculated above to support your answer to receive credit.
7) Explain clearly how the Fed would use two other monetary tools to help support its Open Market Operation above. Explain how these tools would be used and how they would have an impact on the Marco economy.
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