CE econ past paper credit creation (20points)

2008-04-09 8:36 pm

A quetion from 2004 no.6
The balance sheet of Economy A's banking system is shown below. The public in this economy always holds $50 million in cash. Initially, the excess reserve of the banks is $100millon.
Assets($mn) Liabilities($mn)
Cash 500 Deposits 2000
Loans 1500
Suppose $140 million of worth of deposits is withdrawn from these banks and remitted overseas
A) Calculate the maximum possible amount of money supply in Economy A after remittance

Ans:
Maximum possible amount of money supply:
=$(500-140)m/0.2+ $50m =$1850m

Actually i dun understand what is change in money supply
Is it equal to Cash+ Loans from the balance sheet?
and from the above answer, why is it (500-140)/0.2??
What is it representing?
Please explain, thankyou

回答 (1)

Gabriella Montez

2008-04-09 9:10 pm

✔ 最佳答案

a) rrr = ( 500 - 100 ) / 2000 = 20%
After the withdrawal of $140mn, deposits become $1860mn and reserves become $360mn.
Required reserves = $1860mn x 20% = $372mn
So reserves fall short of = $372mn - $360mn = $12mn
Max. change in total deposits: -$12mn x ( 1 / 20% ) = -$60mn
Max. amount of total deposits: $1860mn - $60mn = $1800mn
Ms = Cp + Dd
=>( Change in Ms = Change in Cp + Change in Dd )
This time, Cp remains at $50mn becuase $140mn is remitted overseas and it is not included in HK. Ms.
Finally, max. amount of Ms = $50mn + $1800mn = $1850mn

2008-04-09 13:12:32 補充：
(500-140)/0.2 is just another method to calculate the answer but I'm used to the above method~~~

參考: My Econ Knowledge

👍 0 👎 0