Describe how actual reserves are calculated and explain the difference between desired reserves and excess reserves. How do reserves affect the amount of loans a bank can make?
What will be an ideal response?
Actual reserves are equal to the bank's reserves it keeps on deposit at the Federal Reserve plus the currency in the bank's vault. Desired reserves are the reserves that the bank wants to hold. The amount of desired reserves is equal to the desired reserve ratio multiplied by the bank's deposits. Excess reserves equal actual reserves minus desired reserves. A bank can make loans equal to the amount of its excess reserves.
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Which of the following describes the role of the government in a fixed exchange rate regime?
a. establishing capital controls b. controlling budget deficits c. buying and selling of currency by the central bank d. expanding the money supply
Define X = exports, M = imports, S = saving, I = investment, T = net taxes, G = government expenditure. Which of the following formulas is correct?
A) X - M = S - I - T - G B) X - M = S - I + T - G C) X - M = S + I + T - G D) X - M = S + I -T + G E) X - M = S + I +T + G