Assignment 2: Changes In Monetary Policy

 

Prepare a two- to three-page analysis by answering the questions below. Be sure to cite your references using APA format. 

 

Assume that the Bank of Ecoville has the following balance sheet and the Fed has a 10% reserve requirement in place:

 

BALANCE SHEET FOR ECOVILLE INTERNATIONAL BANK

 

ASSETS             LIABILITIES

Cash $33,000   Demand deposits $99,000

Loans $66,000

 

Now assume that the Fed lowers the reserve requirement to 8%.

 

a.What is the maximum amount of new loans that this bank can make? 

b.Assume that the bank makes these loans. What will the new balance sheet look like? 

c.By how much has the money supply increased or decreased? 

 

Explain your answers.

Text material is from 

Mankiw, N.G. (2008). Principles of economics, 5th edition. Chapters 29, 30, & 31

 

Assignment 2 Grading Criteria                                                    Maximum Points

Met the criteria for the correct responses to the questions assigned. 10

Used vocabulary relevant to this week’s topics—at least five terms. 10

Submitted a well-structured report, free of spelling and 

grammatical errors and cited sources in APA format when necessary.10

Justified ideas and responses by using appropriate examples and references

from texts, Web sites, and other references or personal experience. 10

                                                                                                   Total:                 40