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What is the effect on the money supply when a chartered bank buys government securities from the public?

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The effect is the same as bank lending.The bank buying the securities issues a cheque that in turn gets deposited in a bank.The demand deposits of that bank have increased its lending ability by increasing its excess reserves.

Explain what is meant by fractional reserve banking.

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Fractional reserve banking is the system...

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The following is the consolidated balance sheet for the chartered banking system.Assume the desired reserve ratio is 33%.Show the new consolidated balance sheet after maximum loan expansion has occurred.

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blured image The excess reserves are $10,000 [60,000...

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Are credit cards money? Explain.

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Credit cards represent the ability to ge...

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What are the two significant characteristics of the fractional reserve banking system?

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The two significant characteristics are:...

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Describe the basic features of a chartered bank's balance sheet.

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The balance sheet of a chartered bank is...

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Why is the intrinsic value of token money less than its face value?

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The intrinsic value of token money is th...

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What are the four main assets of Canada's chartered banks?

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The main assets are loans,Gove...

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How does the problem of Moral Hazard relate to financial investments?

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As it relates to financial investment,mo...

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Give an equation that shows the relationship between actual,desired,and excess reserves.

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Actual reserves = desired rese...

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The following is the consolidated balance sheet for the chartered banking system.Assume the desired reserve ratio is 10%.Show the new consolidated balance sheet after maximum loan expansion has occurred.

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11ea82f3_ffb5_7ff8_9299_d9de1efcf11e_TB2474_00 The excess reserves are $5,000 [20,000 - (.1 × $150,000)].Because the money multiplier is 10 (1/.1),the system as a whole could support up to $50,000 ($5,000 × 10)in new loans.Because the new loans become demand deposits in the system,demand deposits would also increase by $50,000.The actual reserves of $20,000 would therefore equal the desired reserve level when deposits are $200,000.The new consolidated balance sheet is: 11ea82f3_ffb5_7ff9_9299_57bba887ed0a_TB2474_00

Money is what money does.Explain.

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This refers to the idea that money (at l...

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When a cheque is drawn against bank A and deposited in another bank,the first bank loses reserves as the cheque is cleared.Yet the cheque collection involves no loss of reserves by the banking system.Explain what significance this has for the lending ability of the system as a whole.

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The system does not lose reserves as lon...

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Suppose depositors at chartered banks transfer $10 billion from their savings deposits to their deposits in non-bank institutions.What impact does this have on M1,M2,and M2+?

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Since M1 does not include either type of...

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Use the figures in the table below to answer the following questions.

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11ea82f3_ffb2_72ab_9299_110026feca8f_TB2474_00 (a)What is the value of M1? (b)What is the value of M2? (c)What is the value of M2+? (d)What is the value of M2++? (a)M1 is equal to $140 billion ($40 + $100). (b)M2 is equal to $560 billion ($140 + $120 + $300). (c)M2+ is equal to $800 billion ($560 + $150 + $30 + $60). (d)M2++ is equal to $1,160 billion ($800 + $10 + $350)

What are the two conflicting goals of bankers? How do these conflicting goals get resolved in the overnight loans market?

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First,banks are in business to make a pr...

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What is the history behind the idea of a fractional reserve banking system?

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Early traders used gold in making transa...

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Why is money considered to be debt?

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The major parts of the money supply are ...

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Suppose the Second National Bank has the following simplified balance sheet.The reserve ratio is 25% and all dollar figures are in thousands.

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Assume that households and businesses ...

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How does a decrease in the desired reserve ratio affect multiple-deposit expansion?

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A decrease in the desired rese...

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