2. (a) Are banks financial intermediaries that collect funds from savers and then lend these funds to
Question:
2.
(a) Are banks financial intermediaries that collect funds from savers and then lend these funds to borrowers? Explain.
(b) Use balance sheet T-accounts to show how losing money on a loan affects a bank’s capital. Explain clearly in words what your diagrams are showing.
(c) Use balance sheet T-accounts to give an example of what happens when a bank originates a mortgage loan and it is used to purchase a house. Be sure to show the balance sheets of the borrower, the borrower’s bank, the house seller and the house seller’s bank. Start by showing the balance sheets before the loan is created. Then show what happens when the loan is made and when the house is purchased. Explain all of the steps clearly.
(d) Explain how quantitative easing is implemented, and how it is expected to influence macroeconomic variables.
3.
(a) Explain how the three equations of the “New Consensus” system represent an inflation-targeting system.
(b) What is missing from this framework?
(c) Is a period of low inflation or high inflation more likely once the population has been vaccinated for COVID-19?
Money Banking and Financial Markets
ISBN: 978-0078021749
4th edition
Authors: Stephen Cecchetti, Kermit Schoenholtz