1)The current required reserve ratio = 10%. Assume there exists a total of 4 banks. They have the following balance sheet items at the end of a business day, where all remaining assets are kept as reserves at the Fed:
Bank A has customers' deposits = $13,000 and total liabilities =$13,000. Bank A has lent out $10,000.
Bank B has customers' deposits = $10,000 and total liabilities =$13,000. Bank B has lent out $10,000.
Bank C has customers' deposits = $9,000 and total liabilities =$13,000. Bank C has lent out $12,000.
Bank D has customers' deposits = $13,000 and total liabilities =$13,000. Bank D has lent out $12,000.
Write out the balance sheet for each of the banks with the information given above
If the banks that have excess reserves do not lend their excess reserves, how much total reserves is held at the Fed?
Assuming that the discount rate is set much higher than the federal funds rate and that the excess reserve rate is set much lower than the federal funds rate, what is the NBR (non-borrowed reserves)?
Assuming that the discount rate is set much higher than the federal funds rate and that the excess reserve rate is set much lower than the federal funds rate, what is the total reserves held at the Fed?
If Bank D borrows from Bank A in order tocover its reserve requirements, and the federal funds rate = 1.5%, how much does Bank D owe Bank A on the next business day?
2) Assume a required reserve ratio = 10%. At a federal funds rate = 4%, federal reserves will have a demand of $500. At a federal funds rate = 2%, federal reserves will have a demand of $800. Assume the discount rate = 5% and the excess reserve rate = 0.25%. The non-borrowed reserve = $600.
Draw the supply and demand curve of the Federal Reserves. Label everything.
What is the equilibrium federal funds rate?
If the Fed lowers the discount rate to 4%, what is the equilibrium federal funds rate?
If the Fed lowers the discount rate to 3%, what is the equilibrium federal funds rate?
If the Fed buys bonds via the open market operations at the NY Fed such that the supply curve shifts to the right by $50, what is the new equilibrium federal funds rate?
If the Fed lowers the required reserve ratio such that the demand curve shifts to the left by $50, what is the new equilibrium interest rate?