Use the simplified balance sheet for Knights Bank in the country of Newport shown below. Assume...

 

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Use the simplified balance sheet for Knights Bank in the country of Newport shown below. Assume the reserve requirement in Newport is 20%. Also assume that Newport's banking system has a LIMITED reserves framework. Reserves Loans Assets $80 million 160 million Liabilities e. Deposits Net worth (Owners' equity) $200 million 40 million a. Calculate the maximum amount that Knights Bank can increase its loans right now. 1 pt b. Based on your answer in part a, calculate the maximum amount possible increase in the money supply that would result? (show your work) 1 pt c. Identify one reason that the expansion of the money supply might be smaller than the amount you identified in part b. 1 pt d. Assume the central bank purchases $10 million in government secruities from the PUBLIC. If bank customers deposit those funds into Knights Bank, by how much would Knight's Bank need to increase required reserves? 1 pt Use a graph of the money supply in Newport to show the impact of the bond purchase on the money supply and nominal interest rates. 3 pts f. How would the bond purchase impact bond prices in Newport? 1 pt g. Suppose the central bank's action results in inflation in Newport while pricing in the country of Interlake (a trading partner) remain stable. i. Draw corectly labeled graphs of the supply and demand for Newports currency (CN) and Interlake's currency (CI) before Newport began to experience inflation. Label the exchange rate in Newport ERN 1 and the exchange rate in Interlake ERI 1. 3 pts Use the simplified balance sheet for Knights Bank in the country of Newport shown below. Assume the reserve requirement in Newport is 20%. Also assume that Newport's banking system has a LIMITED reserves framework. Reserves Loans Assets $80 million 160 million Liabilities e. Deposits Net worth (Owners' equity) $200 million 40 million a. Calculate the maximum amount that Knights Bank can increase its loans right now. 1 pt b. Based on your answer in part a, calculate the maximum amount possible increase in the money supply that would result? (show your work) 1 pt c. Identify one reason that the expansion of the money supply might be smaller than the amount you identified in part b. 1 pt d. Assume the central bank purchases $10 million in government secruities from the PUBLIC. If bank customers deposit those funds into Knights Bank, by how much would Knight's Bank need to increase required reserves? 1 pt Use a graph of the money supply in Newport to show the impact of the bond purchase on the money supply and nominal interest rates. 3 pts f. How would the bond purchase impact bond prices in Newport? 1 pt g. Suppose the central bank's action results in inflation in Newport while pricing in the country of Interlake (a trading partner) remain stable. i. Draw corectly labeled graphs of the supply and demand for Newports currency (CN) and Interlake's currency (CI) before Newport began to experience inflation. Label the exchange rate in Newport ERN 1 and the exchange rate in Interlake ERI 1. 3 pts

Answer rating: 100% (QA)

e Use a graph of the money supply in Newport to show the impact of the bond purchase on the money su... View the full answer