UFV Reserve Ratio and Economy Questions

Q 1: BMO holds $300 million in deposits and maintains a reserve ratio of 10 percent.

? Show a T-account for BMO.

? Now suppose that BMO’s VVIP depositor, Mrs. Johnson, withdraws $20 million in cash from her account. If BMO decides to restore its reserve ratio by reducing the amount of loans outstanding, show its new T-account. 46. [4 marks; Ch11]

Q 2: Find a news article in Moodle, titled “Trump_ U.S. dollar ‘is getting too strong’ – News”, and answer following questions.

? What does ex-President Trump mean by a “strong dollar”?

? Is there an economic connection between the president’s desire for a weaker dollar and his desire that the Federal Reserve (Central Bank in USA) keep interest rates low? Briefly explain.

? Why would a strong dollar make it hard for US firms to compete in international markets?