section 2

13. From before the financial cri from before the financial crisis hecan in September of 2007 to when the crisis was over at the end of 2009, the huge expansion in the Fert's balance sheet and the monetary base did not result in a large increase in the money supply because most of it just flowed into holdings of excess reserves the Fed also increased the required reserve ratio the Fed also conducted open market sales d. the discount rate decreased Using Taylor's Rule, when the equilibrium real federal funds rate is 3 percent, the positive output gap is 2 percent the target inflation rate is 1 percent, and the actual inflation rate is 2 percent, the Fed's nominal federal funds rate target should be a. 5% 5.5% 6% 6.5% 15. If the money supply increases too rapidly inflationary expectations will rise b. government spending will decrease c. bank lending will decrease d. investment spending will fall Section 2: 55 points Show your work formulas as well as your answer for each of the problems below. You can receive partial credit for partially correct answers, but only if I can see your formulas and underlying logic. 1. Assume a bank has $80MM in total reserves and $700MM in total deposits and $2 billion in total assets. At a required reserve ratio of 5%: a. how much does the bank need to hold in required reserves? b. how much is the bank under/over its reserve requirement? c. conceptually i.e., no need for numbers), what actions could the bank take given your answer to (b) above and why