Describe how actual reserves are calculated. Explain the difference between required 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. Required reserves are equal to the required reserve ratio multiplied by the bank's deposits. Banks might want to keep reserves over and above their required reserves. The amount of reserves banks want to keep is their desired reserves. 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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The textbook uses as its precise definition of hyperinflation an inflation rate
A) below zero. B) of less than one percent per year. C) of more than one hundred percent per year. D) of more than one thousand percent per year. E) of more than fifty percent per month.
Suppose total output (real GDP) is $10,000 and worker-hours are 20,000. We can conclude that:
A. real GDP per capita must be $200,000. B. the price-level index must be less than 100. C. labor productivity must be $0.50. D. nominal GDP must be between $10,000 and $20,000.